Does SodaStream's Razors And Blades Model Hold Up?

The long thesis on SodaStream (NASDAQ:SODA) is centered around a classic razors and blades business model, by selling the soda makers on the cheap (~35% margin) and thus captivating the consumer with carbon dioxide refills (~90% margin) and syrups (~55% margin). Although finding alternative syrups should not be that hard, bypassing SodaStream with gas refills is pretty much of a hassle (as seen here).

The short argument is centered around SodaStream being a fad and that the soda makers will tend to end up deep in the kitchen cabinet. Management has indicated that the American cumulated attrition rate is 40% after three years of use (see here) and management also states that there are roughly 6 million active SodaStream makers in circulation currently.

In this article we will examine how these statements compare to the reported volume numbers.

Soda makers sales volume

There has been tremendous growth in soda makers sales by using sales over a 3-year period as a proxy for active users. SodaStream has gone from 2,600 units in 2009 to roughly 8,100 units in 2012.

Soda makers 2007 2008 2009 2010 2011 2012
Volume (x 1.000) 730 877 1,057 1,921 2,710 3,499
Change % 20% 21% 82% 41% 29%
3yFleet 2,664 3,855 5,688 8,130

Applying the 40% attrition rate to the cumulative sales volume over the last 6 years would yield results inline with the 6 million active users estimate of management.

Active users (x1.000)
6Y sales (07-13) 10,794
Attrition 40%
Users 6,476

Gas refills

The sales volume of gas refills has been much more modest and given the relative difficulty of bypassing refills through SodaStream due to the proprietary vent, gas refills might be a better proxy for active users than soda maker sales (note that the sales volume is in 60L canister equivalents).

Gas refills 2007 2008 2009 2010 2011 2012

Sales (in millions)

7.5 7.7 8.5 10.3 13.3 16.5
Change % 3% 10% 21% 29% 24%

If we use the 16.5 million refills in 2012 to estimate number of active users through various average refills per year, 6 million active users indicate an average of 2.75 refills per year. Inversely, if we assume an average of 4 refills per year (per 60L canister equivalents), the number of active users would be 4.1 million.

Average refills per year Active users (in millions)
4 4.1
3 5.5
2.75 6.0

Consumables (syrups)

If we compare quarter to quarter change in sales volume per category, we see that volume change in syrups follows the volume change of soda makers with a lag of one quarter. Since the refills are repeat purchases and soda maker sales are a one time purchase, it seems odd that syrup sales follow the soda makers in volume changes (it might be a promotional thing as you stock up on syrups when you purchase a soda maker, but then again there should not be a lag by one quarter).

When looking at syrup volumes at an annual basis it is notable that volume per user has increased relative to gas refills, indicating that the company has successfully managed to widen their assortment and create stickiness for using its branded products.

Concluding remarks

  • The 40% attrition rate seems to be a plausible number when comparing soda maker sales volume to gas refill volumes.

  • Volume growth in refills has been steady during the last 5 years (~20% increase per year), which suggests that there is indeed a very solid user base.

  • SodaStream seems to be doing a very good job at getting users to use Sodastream branded syrups.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in SODA over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.