Swiss coffee machine is Starbucks’ secret weapon

As Starbucks Corp. intensifies its charge on China, one of its little-known weapons is a family-owned company in a sleepy Swiss village.

Thermoplan AG, based among cow pastures in Weggis, a town of 4,400 inhabitants near Lucerne, makes the automatic machines for espressos and cappuccinos in each of Starbucks’s almost 21,000 shops around the world.

“Fully automatic machines are something very German and Swiss,” said CEO Adrian Steiner, an electrical engineer who has worked for Thermoplan for 17 years. “It’s a product that matches the technology of those countries. It’s like the watch industry, where you have everything from education to the people, the quality, value, to reliability.”

With 230 employees, Thermoplan, which exports 98 percent of its wares, is emblematic of Switzerland’s globally oriented small- and medium-sized companies that bank on craftsmanship to drive their business. A free-trade accord between Switzerland and China and the rising popularity of creamy coffee drinks in the Asian giant - with China set to become Starbucks’s biggest market outside the U.S. - have given Steiner cause for optimism.

Thermoplan joins companies from watchmakers such as Swatch Group AG and producers of precision tools like Mikron Holding AG setting their sights on more business from Beijing and Shanghai.

Starbucks said last month that it plans to add 800 new stores in China and the Asia-Pacific region in fiscal 2015.

Thermoplan’s foray into the world of coffee can be traced back three decades when it made whipped cream machines.

Then, in 1999, with just 20 employees, its fortunes soared on an exclusive global contract for Starbucks. The Seattle-based coffeeshop chain had decided to replace traditional espresso machines that require baristas to prepare grounds and steam milk, with automatic models.

With the contract, Thermoplan’s machines have become ubiquitous at Starbucks outlets from New York and Paris to Beijing.

A basic Thermoplan model starts at 7,000 francs ($7,700), with bigger, self-cleaning ones going for as much as 17,000 francs. The Mastrena, which Thermoplan produces just for Starbucks, was introduced in 2008. To make a cappuccino, the operator needs merely to select from a computerized menu.

“Its reduced height and ease of use encourages baristas to connect with customers for personal, immediate interaction and service,” Lisa Passe, a Starbucks spokeswoman, said.

Thermoplan’s contract with Starbucks is up for renewal next year but both companies declined to comment on it.

Steiner said his company’s ability to work swiftly and innovatively was what clinched the deal, calling it “the power of the big and the flexibility of the small.”

Assembling a machine, primarily by hand, takes six to eight hours. At one point, Thermoplan was delivering 84 machines a day to the world’s largest coffeeshop operator. Today, the Seattle-based giant accounts for a third of Thermoplan’s sales. Other clients include Nestle SA, Google Inc. and Costa Coffee.

Thermoplan’s revenue touched 130 million francs last year, up from less than 100 million five years ago. An initial public offering isn’t in the cards for now, though Steiner declines to rule one out for the future.

Before a machine heads out the door, it must successfully brew 100 cups of coffee. A trained technician from one of Thermoplan’s service partners is on site within four hours to fix a problem wherever a machine breaks down.

In spite of high production costs and an unfavorable exchange rate, Thermoplan produces locally, in four airy halls a short walk from the sparkling waters of Lake Lucerne.

“We’ve of course done an analysis of what we’d need to produce in Germany, or in eastern Europe, or even in Malaysia,” said Steiner.

There are 40 employees in Thermoplan’s R&D department, plus 140 in production. An abundance of skilled labor, laws that make hiring and firing straightforward, efficient government services and low taxes keep Thermoplan producing at home, Steiner said.

For now, the company plans to ride the gains from the spreading social phenomenon that coffee drinking has become, the executive said.

“Ukraine, Russia, Kazakhstan - they’re just discovering cappuccino,” he said. “It’s fascinating how a drink like a cappuccino is changing the world.”

Bloomberg