Coffee, candy and capital

Summary: Accounting expenses brand and customer-acquisition spending in full immediately, while capitalising factories over years, making young intangible-heavy businesses look weaker than they are. This story uses Nestlé's coffee-in-Japan strategy to explain the distortion, and how to read past it without inventing moats that never existed.

Summary: Accounting expenses brand and customer-acquisition spending in full immediately, while capitalising factories over years, making young intangible-heavy businesses look weaker than they are. This story uses Nestlé's coffee-in-Japan strategy to explain the distortion, and how to read past it without inventing moats that never existed. When Nestlé set out to sell instant coffee in Japan, it sold almost nothing at first. Japan drank tea. The instant coffee that had conquered American kitchens found no place in the Japanese cup, and advertising its convenience did nothing. The company’s own research eventually reached an uncomfortable conclusion. There was nothing to reawaken, because the Japanese carried no childhood memory of coffee. A taste has to be laid down early to be wanted later. So Nestlé, in the telling that has since become marketing lore, stopped selling coffee and started selling sweets: coffee-flavoured candy for children, aimed at a generation too young to drink the thing itself. The return, if it came, would arrive 20 years out, when those children reached adulthood carrying an affection for a flavour they had known all their lives. The story is tidier than the history, but the strategy is real and Japan, in time, became a coffee-drinking country. Consider what that campaign was in accounting terms. It was an investment in an asset: a future population of coffee drinkers, built deliberately, at cost, over a generation. That asset never appeared on a balance sheet. Every unit of money spent on it was booked as an expense in the year of spending, deducted from profit and gone from the record the moment it did its work. The most valuable thing Nestlé built in Japan was the one thing its accounts could not show. What the ledger leaves out This is the ordinary condition of the modern franchise. Accounting capitalises a factory and depreciates it across its life, so a rupee of plant sits on the balance sheet and passes through profit slowly. A

This article was originally published on October 01, 2026.