EUROPEAN BUSINESS NEWS Nespresso to Change Its Commercial Behavior in France French Antitrust Authority to Test Changes for One Month By INTI LANDAURO CONNECT Updated April 17, 2014 1:14 p.m. ET PARISâ Nespresso, NESN.VX +0.82% the company that made coffee capsules famous, has to make a bit more room for its rivals. France's antitrust watchdog said Thursday that the unit of Switzerland's Nestlé SA has agreed to change its commercial behavior in France, after finding evidence it was trying to squeeze competitors from the lucrative coffee-capsule market. The decision by the French regulator is a blow to Nestlé, which has waged several losing legal battles in recent years to protect Nespresso from rival brands, claiming other companies have encroached on its designs. Two Nespresso competitors, DE Master Blenders and Ethical Coffee Company, complained to the Autoritée de la Concurrence four years ago that Nespresso was potentially abusing its dominant position in France, said Bruno Lasserre, the head of the authority. The rivals alleged that Nespresso had set up unfair hurdles, by changing the design of its capsules and coffee machines to rule out the possibility of coffee drinkers using products from a rival. The antitrust watchdog began an inquiry and found problematic behavior, it said. Since 2009, Nespresso has modified four times the design of either its coffee machine or capsules just before or just after a new competitor entered the market in what appeared to be a strategy to cut off potential sales to rivals. "It is normal for a company to innovate, but it is troubling that each modification happens when a competitor arrives," said Mr. Lasserre. The Nestlé unit also clearly labeled its machines as for use with "Nespresso capsules only" and suspended warranties for customers using non-Nespresso capsules in their machines. After months of discussions, Nespresso has now agreed to warn competitors about design changes three months in advance. It also committed to extend the guarantee on its coffee machines even if customers are using other capsules and will abstain from public negative comments about the quality of other capsules. The company also scrapped the captions on its machines, the antitrust watchdog said. Nespresso spokeswoman Diane Duperret said the commitments "don't imply acceptance" of the competition authority's analysis, "but do signify our desire to cooperateâ¦to bring this matter to a close." The changes offered by Nespresso will be tested for a month on the French market and if the results are satisfactory, authorities will stop all proceedings against the company, said Mr. Lassere. If not, Nespresso could be ordered to take additional measures or a sanctions process would start. The stakes are high. France has traditionally been Nespresso's largest market, where it controls about three quarters of the espresso-capsule coffee-machine market and 85% of the Nespresso machine-compatible capsules, the watchdog said. "Nespresso is very careful about this case," said Mr. Lasserre. "It is the first time an antitrust authority anywhere has reviewed this." The commitments made by the coffee company could have an impact in other countries, he said. Analysts estimate Nespresso had sales of around 4 billion Swiss francs last year ($4.55 billion) and expect revenue to rise to around 4.5 billion Swiss francs this year. The sales growth rate has declined to around 10% from more than 20% two years ago as the business has become bigger and cheaper brands have entered the market. "Nespresso is still a strong business, but there is increasing competition and they are losing market share," said Jon Cox, an analyst at Kepler Cheuvreux in Zurich. In a statement, DE Master Blenders said Nestlé is "taking a first step into the right direction", but it is still concerned about Nespresso's capacity to undermine its competitors. Jean-Paul Gaillard, Ethical Coffee Company's chairman and a former top executive at Nespresso, said he would look at the Nespresso commitments and send his comments to the competition authority. "If Nespresso really had done nothing wrong, why are they changing their behavior?," he said. The antitrust watchdog insisted that Nespresso implement the changes before Mother's and Father's Days in France, in May and June, when demand for its coffee machines typically peaks. http://online.wsj.com/news/articles...0001424052702304626304579507060960147686.html