The International Home and Housewares Show is wrapping up today in Chicago, Illinois. The biggest housewares show of the year was attended by thousands of visitors from around the globe including China, Japan, the Netherlands, New Zealand, Panama and everywhere in between. Exhibitors attend the show hoping to show off their latest and greatest products and sell them to retail buyers from all over the world. Capital Ladder Advisory Group has been attending the IHH Show for the last 4 years, representing our clients' interests in the consumer goods market as investors. Our focus at the IHH Show over the last two years has been gauging buyer sentiment and strength of the consumer market for product categories such as coffee and coffee flavored drinks and the at-home carbonated beverage market, which is a brand new category in the United States.
Last year's most exciting exhibitor platform was the SodaStream International (SODA) exhibit. The first day of the IHH Show last year featured a commercial endorsement by Jillian Michaels, renowned fitness guru and star of the hit NBC show "The Biggest Loser". This year, even without a celebrity endorsement, the SodaStream exhibit was still one of the busiest, if not the busiest, exhibit at the IHH Show. While SodaStream sales representatives demonstrated the new Source soda maker and SodaCaps for guests, retail buyers and other exhibitors who simply couldn't ignore the sounds of the carbonating Source machine were making deals with the world's largest at-home carbonated beverage company.
SodaStream featured all the variations of the new Source machine, which comes in a variety of colors and composite materials such as plastic, metal, and even bamboo. Additionally, the company had sample syrup bottles of upcoming launches for premium flavors such as Country Time Pink Lemonade, Eboost, V8 and Ocean Spray. Alongside traditional syrup bottles, SodaStream fully demonstrated the capabilities and functionality of its latest product line known as SodaCaps. SodaCaps are a vacuum-sealed, recyclable, single-dose cap that dispenses the consumer's desired flavor syrup into 1 liter SodaStream bottles to create a flavored beverage of choice. The company is working toward a biodegradable version of this product line. SodaCaps will be a premium line offered to SodaStream users in 2013, offering exclusive flavors that are absent in the bottled syrup line. Some newer SodaStream kits already feature a sample SodaCap at participating retailers.
The new Samsung refrigerator, powered by SodaStream CO2, was also on display and found itself front and center as buyers flocked to the SodaStream platform. Samsung will be promoting and marketing this new refrigerator, which will provide sparkling and filtered water in the very near future, and SodaStream officials are excited about the marketing ideas that Samsung has provided them. Samsung expects many retailers to jump on board and sell the revolutionary product. While SodaStream officials don't feel the partnership will provide a substantial boost in sales near term, they view the new partner and product as a meaningful move into the single-serve, home carbonation category, and see greater CO2 adoption by retailers through this collaborative product launch.
The Samsung 4-door refrigerator with built-in soda maker will bookend the product portfolio of SodaStream products as the company looks to seek out consumers across multiple channels and in multiple economic demographics. Within this new co-branding deal is the opportunity for SodaStream to explore new channels of distribution. With SodaStream's new distribution partnership at homedepot.com, it is entirely probable that investors could see a roll-out of the CO2 exchange program at Home Depot during FY13. If these retailers offer the Samsung 4-door carbonating refrigerator, it is likely that they will need to offer a one-stop shop for the consumer who wishes to purchase the refrigerator. If I'm Home Depot or Sears and I'm offering this carbonating refrigerator, I wouldn't want to send my customer elsewhere to buy the CO2 refill. View a demonstration of the new product here.
There was a lot happening at the SodaStream exhibit throughout the 4-day show, but even with all the commotion, Capital Ladder Advisory Group's Edward Cordoba and myself were afforded the time to speak with retail account managers and executives of SodaStream one-on-one. Our first conversation took place with Gerard Meyer, President of SodaStream USA. Gerard gave us a run-down on how strong operations and sales were in the United States. Conversations then followed with several Sodastream Account Managers and VPs such as Stella Lee, Karen DeStaffano, and Valerie Gardner. One thing is certain: when speaking with all three ladies, they are passionate about SodaStream and are delivering results for the company and its shareholders.
In our talks with SodaStream, we found out that the company will be featuring its products this coming Sunday on HSN and QVC. Sunday will represent the first television showcase for SodaStream on QVC here in the United States. Additionally, it will be the debut of a 3oz CO2 canister aimed at countering the DOT's recent declaration on used CO2 canisters and certain logistics issues that are particular to the home shopping channels.
Speaking of CO2, which many bears of SODA don't fully appreciate as the biggest barrier to entry, Kohl's (KSS) will be rolling out the gas exchange to all of its retail locations selling SodaStream products this week. SodaStream was recently featured in Wal-Mart's weekly circular, which produced an average weekly sales bump of SodaStream soda makers sold during the week ending February 24, 2013. With this in mind, Kohl's will be featuring SodaStream in its respective weekly circular this coming Sunday, and detailing the gas exchange for consumers.
Product placement is important for this newer product category and for nearly 2 years, SodaStream sales have benefited from prime real estate at Bed Bath and Beyond (BBBY) and Wal-Mart (WMT). In April, however, SodaStream products will move off of the Wal-Mart end-cap at most locations to assume a more in-line product placement within the small appliance category. With this in mind, some SodaStream analysts have rationalized the slowing of sales growth from Q2 and Q3 in their FY13 estimates. This slowing of sales growth may not be realized, though, as SodaStream has already devised a solution that will further highlight its products in the small appliance category. Wal-Mart is a huge supporter of the home carbonation category and SodaStream as the category leader. In fact, the nearly year-long end-cap space Wal-Mart dedicated to SodaStream products did not come with any premium for the space, and neither will the aisle space SodaStream is acquiring. Talk about retailer support! With respect to product placement, SodaStream has worked out deals with other retailers to highlight its products in the department store chains.
On a side note, Best Buy began the CO2 exchange program in several test locations during the month of February, and SodaStream expects Best Buy to roll out the gas exchange process companywide sometime in 2013. SodaStream boasts nearly 10,000 gas locations in the U.S. to date, and with the latest developments, we forecast the company to grow the number of gas exchange locations by roughly 15% in the U.S. in 2013.
Now, let's talk about competition briefly. As most readers and investors in SODA already know, Cuisinart launched its version of a soda maker with bottles and CO2 during Q4 2012. Sales have been relatively slow, and inventories of Cuisinart soda makers are moving at roughly 18:1 pace with SodaStream soda makers heavily outpacing Cuisinart soda maker sales. We don't expect this rate of sales to improve meaningfully for Cuisinart in the near to mid-term. However, Cuisinart has extended its soda maker category to include a smaller, more portable and lesser priced soda maker alongside their very own brand of syrups, which are priced above the average SodaStream brand syrup flavors. Hamilton Beach is also stepping into the ring with its own soda makers named "Fizzini".
Hamilton Beach Brands, Inc. (Hamilton Beach), a leader in small kitchen appliances, announced last year that it has entered into an exclusive five-year licensing, manufacturing and distribution agreement with Sparkling Drink System Innovation Center S.P.A. ("SDS-IC"), an international marketing and manufacturing company specializing in home beverage carbonation products. Under the terms of the agreement, Hamilton Beach will market and sell SDS-IC's line of sparkling beverage appliances and related consumables in the United States, Canada, Mexico, and South Korea. Alongside the Hamilton Beach Fizzini soda makers, the company will also offer its own brand of flavored syrups.
CEO Daniel Birnbaum
We can't say enough about the enthusiasm and "know how" of the SodaStream team, but even more so, we feel it is necessary to identify the character of the company's CEO Daniel Birnbaum. Much has been made of Birnbaum's recent visit to the home of the Israeli President Shimon Peres, as it was written in Almonitor, a Middle East publication, in January this year. Daniel Birnbaum was selected to receive this year's Outstanding Exporter Award from the President of Israel, but as the article states, the event turned into much more. After asking to say a few words, he took the microphone, and looked President Shimon Peres straight in the eyes. "I am very proud to receive this prize and to raise the flag of Israel in 45 countries around the world. But it is precisely because of this commitment that I must tell you, Mr. President, about something that raised a question for me -- a question that I consider far more important than industry or exports. The question, which I am asking here today, is how we relate to each other as human beings." A stunned silence filled the hall. Someone had just broken all the rules of protocol.
The reason I am taking the opportunity to reiterate the statement made by Birnbaum in January as he spoke to the President of Israel is, in part, due to the way he spoke with and to the vast majority of participants at the IHH Show. While he is very passionate about the business and operations at hand, Birnbaum ingratiates himself to others through consideration of basic human civility. In speaking directly with Daniel through the course of the day, one understands his dedication to delivering excellence for the benefit of the business and the planet.
Given the deals that took place at the IHH Show, the additional gas exchange rollout by Kohl's, operational excellence and strong retail presence that should continue for the foreseeable future, Capital Ladder Advisory Group feels SODA will probably outperform its peers in the consumer goods sector in 2013.
With that, we are officially concluding our IHH Show coverage. Many deals took place at the IHH Show between SodaStream and retailers. In our full scale report offered at Capital Ladders, we discuss the deals in detail, as they took place in a public setting. While a multitude of deals took place at the show, there is one big deal in particular of which we know investors will really fancy hearing the details. We also highlight other aspects regarding the new competitors, risks to the business, conversations with management, including Daniel Birnbaum, CEO of SodaStream, advancement in product placement with specific retailers, the manufacturing partnership in the United States, the new 3oz. CO2 canister and much more.