The Nespresso Index

As Alfréd Rényi once said, ‘a mathematician is a machine for turning coffee into theorems’. Like many mathematicians in 2017, I use Nespresso, the pod-based espresso system created by Néstle, as my main day-to-day source of coffee. I noticed that Nespresso capsules were quite a bit cheaper in the UK than in either Israel or Brazil, the other two countries where I’d lived. In the UK they seemed to average around 30-35p, while in the other countries they were around 40-50p. For a while I explained these differences away on the basis of Brazil having notoriously high import tariffs and everything being expensive in Israel. Then a colleague of mine suggested that prices might be cheaper in his home country of Poland, which made sense to me. However, to our surprise, even that turned out not to be the case. Curious, I decided to do some research, and the result is the Nespresso Index. The name is a homage to the Big Mac Index, a comparison of Big Mac prices around the world published by the Economist, intended as an informal tool for measuring purchasing-power parity (PPP). (Despite this, the Nespresso Index should not be used to derive similar estimates of PPP. The price of a Big Mac may be considered a sort of weighted ‘basket of goods’ sourced from the local economy, including labour, rent, meat, bread, cardboard, and advertising. Nespresso capsules, on the other hand, are produced in a single location (Switzerland) and then shipped worldwide. In this sense, the Nespresso Index is more like the iPad Index.)

The price of a capsule of Arpeggio Arpeggio is one of my four favourite Nespresso blends (the others are Roma, Rosabaya and Indriya), and is typically among the cheapest. Deeming it fairer to base the index on the price of a single blend rather than on an average over all blends (particularly since not all blends are available in all countries), the index is based on the price of a single capsule of Arpeggio. The price data in local currencies was scraped from official online Nespresso stores in November 2017, for each country listed here that didn’t redirect back to the same page. The price data was converted from local currencies to GBP at mid-market rates on 19 November 2017. The data can be downloaded in CSV format both pre and post currency normalization. The US prices exclude sales tax, which is calculated on a state-by-state basis, but the prices for all other countries include any such tax. Click the chart below to enlarge. As you can see, the UK is actually the cheapest of all 58 countries for which data was available, although not by much. The price was 31p in the UK compared with 31.2p in second place France, a difference that is well within the range of EUR/GBP daily volatility. The UK was actually the cheapest country for 19 of the 21 standard range blends (excluding Variations and Limited Editions), only being beaten into second place by France in the prices of Kazaar and Dharkan. The same data visualized on a map shows the regional divides in the prices, with those in Europe quite uniformly lower than those in the rest of the world. With Nespresso capsules all being produced in Switzerland, this probably comes as no surprise. The variation in cost to Nespresso of selling the capsules in different countries is largely down to a combination of transportation costs and import tariffs. In the case of Europe, transportation costs are clearly low, and Switzerland has a free trade agreement with the EU. The chart below (in red) was obtained by grouping countries in the same way as Nespresso and taking the mean price of Arpeggio capsules among the countries in each group. The average price in Europe is about 60% of the average price in the Middle East and Persian Gulf.

Price relative to median income PPP In addition to an absolute comparison of prices (normalized by currency exchange rates), I also wanted to see a comparison of prices relative to median income. In other words, I wanted to know how much a capsule of Arpeggio was relative to the average (in the sense of median, which I think is more appropriate here) person’s wages. It turned out to be quite hard to find median income data. The only two sources I found were a poll by Gallop, now quite out of date, and an extensive data analysis by the Center for Global Development, in which they estimated the full income distributions of 144 countries by making tens of millions of queries to the World Bank's PovcalNet database. This latter source is what I've used. In this data, median incomes are compared between countries using existing PPP estimates, rather than by using currency exchange rates. Median income estimates were not available for 15 of the 58 countries in which Nespresso has a presence, most notably all Middle Eastern and Persian Gulf Arab countries except Turkey (which Nespresso includes in that region). Not surprisingly, these prices relative to median income PPP are significantly more skewed than those relative to absolute currency exchange rates. In each of the trio of West African countries — Ghana, Ivory Coast, and Senegal — Arpeggio capsules are more than 20 times as expensive as in the UK. And for completeness, means taken over geographical regions as above produce similarly skewed data.