After Coca-Cola, it’s now PepsiCo‘s (NYSE:PEP) turn to enter the at-home carbonation beverage market. The beverage giant has tied up with a relatively unknown brewer maker, Bevyz, which will oversee the single serve packs of the beverage giant that are compliant with Bevyz’s machines.
The Coca-Cola Co (NYSE:KO) acquired a 10% stake in Keurig Green Mountain (NASDAQ:GMCR) last month, valuing the company at $12 billion (or $75 per share). Green Mountain’s shares have jumped more than 45% since the announcement. Over the years, soft drink sales in the U.S. have declined because consumers have become more health conscious and are cutting down on drinking soda. As a result, beverage companies are looking at new outlets of consumption, in the the hope of selling more beverages, and home brewers certainly provide such a potential.
At-Home Carbonation Market Could Become Huge
The deal reinforces the belief that the at-home carbonation market is set to become huge. The at-home carbonation market is currently small. SodaStream is the global leader, with annual revenues of $563 million in 2013. However, if the at-home carbonation market can even partially replicate the growth of the at-home coffee brewing market, there will be a tremendous upside. In fact, according to the article linked above, SodaStream estimates the market to rise to $40 billion in the U.S. alone and $260 billion globally.
These estimates are based on very optimistic forecasts, though; the company assumes that 100 million of the 115 million households in the U.S. will eventually own these machines. However, even if fewer households bought such machines, there is still a significant opportunity to grow from here on. SodaStream’s revenues have almost quadrupled in the last four years, suggesting that people are comfortable with the concept of preparing cold beverages at home.
Partnering With PepsiCo Has Huge Benefits
For Bevyz, this deal can have massive implications. Partnering with Pepsi acts as a huge marketing boost. Few would have probably noticed the launch of the brewer if Pepsi did not partner with the company.
Since Bevyz is a relatively small player in the U.S., there is an air of uncertainty and skepticism about the quality and the reliability of its products. The agreement with Pepsi tacitly touts the quality of Bevyz’s machines. PepsiCo must have been satisfied with the technology and the quality of the product, else would not have struck the deal in the first place.
Moreover, the number of third-party companies compatible with a particular machine is a big factor influencing the purchasing decision of the customers. With PepsiCo products now compatible with the machine, more companies could follow suit. This will only boost the long-term prospects of Bevyz.
Threat To Green Mountain?
Bevzy brewers provide certain SODA)/9278089.html" rel="nofollow">usability features that Green Mountain brewers don’t, i.e., users can brew hot, cold, sparkling and still brewers, all with a single machine. Not only does it provide users with significant cost savings (i.e., buying a single machine instead of multiple machines), it also saves them of their precious kitchen space.
However, it still remains to be seen if the quality of the brewed drinks matches that of Keurig brewers. Coffee aficionados, in particular, will be hesitant to switch to a new device if the quality of the brew fails to live up to their expectations. Keurig brewers also have the advantage of being compatible with a vast number of companies, in addition to being compatible with Green Mountain pods. Although, as mentioned before, while more companies could eventually tie up with Bevyz, there is no assurance that this will definitely happen. Moreover, it won’t be easy for Bevyz to snatch Keurig’s existing customers, since there generally exists a certain amount of user stickiness associated with a product. People are hesitant to switch to a new product if they are satisfied with the existing product.
Green Mountain is the leader in at-home hot beverage brewers; however, the company is now also focusing on cold beverages with the the Keurig Cold and Keurig Water brewers in the pipeline. The threat to Green Mountain, if any, will be to its upcoming brewers, i.e., the Cold and the Water. These brewers do not offer the advantages that Keurig’s conventional brewers do, i.e., wide compatibility and a loyal customer base. It’s hard to imagine Bevyz disrupting Green Mountain’s coffee business.
Disclosure: No positions.