The SodaStream (NASDAQ:SODA) is a home carbonation machine that enables its user to make a wide array of carbonated beverages using branded and non-branded syrups. The machine was first invented by Guy Gilbey in 1903, and has since changed dramatically to appeal to the modern consumer.
The transformation of the modern SodaStream Corporation began in 1998 when SodaStream merged with Soda-Club. The new selling point of the SodaStream machine became providing healthier soda and soda substitutes. The product array currently consists of a number of broad categories such as energy drinks, regular cola, diet cola, Country Time branded syrups, Kool-Aid branded syrups, Crystal Light branded syrups, unsweetened seltzer, sparking naturals, and sparkling teas.
Much Healthier alternative
SodaStream offers a number of flavors that mimic popular soda brands such as Coca Cola, Dr. Pepper, Mountain Dew, Sprite, 7-Up, Fanta, Barqs Root Beer, Canada Dry, Schweppes, and Sunkist. These soda flavors are available in diet flavors without the use of aspartame: a harmful additive in diet soda with 92 documented health concerns. Here is a good video demonstrating the very real implications of heavy soda consumption and is the exact opportunity SodaStream is looking to exploit. Here is a chart showing the health benefit of SodaStream mimic flavors over the original soda. The fact that SodaStream offers a significantly healthier product and a vision for a bottle-less world has already concerned Coke (NYSE:KO) and Pepsi (NYSE:PEP). There is reasonable speculation that Coke and Pepsi had SodaStream's original commercial for the Super Bowl pulled because it attacked the two soda giants. This seems to have backfired on Coke and Pepsi because the video linked above has over 4.3 million views thus far.
SodaStream gained significant clout by signing on food and beverage giant Kraft (NASDAQ:KRFT). This deal has enabled SodaStream to use Kraft's Country Time Lemonade, Kool-Aid, and Crystal Light brands. SodaStream offers the most popular Kool-Aid Flavors such as tropical punch, cherry, and grape. It also offers the classic Country Time Lemonade and Half & Half syrups as well as a diverse lineup of Crystal Light syrups. Signing major retailers such as Wal-Mart (NYSE:WMT), Target (NYSE:TGT), Bed Bath & Beyond (NASDAQ:BBBY), and Macy's (NYSE:M) among others has been a major breakthrough for SodaStream.
A major argument against SodaStream is that it is a fad product and the hype will soon dissipate. I decided to do a basic cost benefit analysis to see if the fad argument is likely to hold merit in the long run.
- Soda is made for .25 cents per can once SodaStream package is bought
- Saves customers the time from regular trips to the grocery store
- It is a much healthier product
- Operates without cans or bottles making it a green product
- SodaStream plants 10 trees in Brazil for each machine bought, giving the customer a further sense of a green purchase
- Readily available throughout the US in Wal-Mart, Target, Bed Bath & Beyond, Target, and Macy's stores nationwide
- Reduces storage concerns for heavy soda drinkers
- Never waste soda because it can be re-carbonated and enables the consumer to choose level of carbonation
- Since January 2009, SodaStream has saved over 1.1 billion bottles used
- Easy to use product with no more than three buttons on any model causing a very small learning curve
- Customers often need to adapt their tastes
- The time taken to change CO2 tanks is a common complaint
- The base machine package with a 2 liters of carbonation and a sample pack of twelve syrups costs $132
Value Equation thoughts
The major benefits can be grouped into health benefits, convenience benefits, flexibility benefits, and environmental benefits. The costs of the SodaStream are the adjustment in consumer taste, time to replace CO2 tanks, and the monetary cost to buy the machine. There are a plethora of benefits the SodaStream machine offers that clearly outweigh the costs associated with the machine. For these reasons, I believe that the SodaStream has substance and is not a fad product. I believe SodaStream as a concept is an investment worthy company. SodaStream has recently been run up into the $50 a share range, which is higher than I am willing to pay at this point but the risk profile may be fitting for others given the growth potential.
My analysis has led me to think SodaStream's method of making soda does have its merits. With that being, I do not think SodaStream has any kind of significant economic moat (barrier to entry, significant intellectual property etc.) to protect its company. SodaStream's main advantage is that it is the first mover into a healthier soda industry. I believe it is only a matter of time before regulation and/or information spreads on how truly damaging traditional soda can be. Opposition is mounting against Coke and Pepsi, led by Mexico as seen in the video above. The main conclusion on SodaStream is that it is currently positioned to be the big winner in the long run, but a healthier soda alternative with capabilities to be made at home is the real trend of the future.
Feel free to share your thoughts, comments, other knowledge, or opposition to my argument below as this is an opportunity to learn.