Below is an exclusive interview with SodaStream International (SODA) CEO Daniel Birnbaum. I got the chance to catch up with Mr. Birnbaum and ask him a couple questions about where his rapidly growing company is headed next.
Galileo Russell: At the latest investor presentation (at the Cannacord Genuity Growth Conference), it was mentioned that SodaStream will be expanding the energy drink market (with an exceptionally better price point than current consumer products Monster or Red Bull). What kinds of energy drinks will you be offering? And how much cheaper are your products going to be than traditional cans?
Daniel Birnbaum: SodaStream already has a line of basic Energy and Diet Energy flavors, and we are now adding a range of fruit flavored energy to the portfolio. Consumers can save up to 80% over the branded offerings.
GR: What are the barriers to entry in the home carbonation market? Does SodaStream have any intellectual property to maintain an advantage over any competitors that already have in-home beverage makers (such as Green Mountain Coffee Roasters)?
DB: Our decades of experience and "know-how" when it comes to the CO2 aspect of the product is a key competitive advantage. Managing the manufacturing, refilling and reverse-logistics programs for this HAZMAT product is not easy. We believe that the existence of our current exchange program at over 55,000 locations globally is a strong barrier to entry. We do hold dozens of patents as well, including some important ones related to the CO2 cylinder itself, such as the special proportional valve, and safety features. We also hold the patent for carbonating into a glass bottle, and our newest products include patents pending for the snap-and-lock bottle system, among others. As for Green Mountain, they are in the coffee business, so we don't seek an advantage over them per se, and we also don't see them becoming a gas-exchange company.
GR: In the most recent quarter US revenue grew 96%, and now represents 32% of overall sales. How much room for growth does SodaStream still have in the US, and when do you see the region becoming the majority of sales (if ever)?
DB: We have only started to scratch the surface of SodaStream potential in the US, where our household penetration is under 1% after only a few years at retail. By comparison, in markets where we have had more time to grow we have achieved an active user base in up to 25% of homes, such as in Sweden. So we have only just started our US growth. And while we do expect the US to one day represent over 50% of our sales, we are also seeing solid performances in so many other countries, including large ones like France, Japan and Brazil. And we have yet to enter other significant countries, such as India or China. But the US is the world leader in soda volume, and SodaStream will continue to grow and take a meaningful share of the market.
GR: One thing that was addressed in your Q2 conference call was the upcoming release of Night Spirit flavors later this year. Could you touch on the potential of being able to offer alcoholic beverages, and what beverage makers will be able to make Night Spirit drinks?
DB: The Night Spirit is a line of syrups that will come in our standard syrup format, and will include such flavors as Cosmopolitan, Mojito and Cuba Libre. It also includes a Limited Edition line of our Genesis soda makers with packaging that is designed to go along with the look and feel of the syrups. The syrups are not alcoholic, though a consumer can certainly add alcohol to the drink after it is made.
GR: Currently SodaStream has a little over 13,000 US retail locations carrying its products. Where do you see this number in 2-3 years, and what types of retailers will you be looking to add?
DB: In the near term, we will continue to add stores where other small kitchen appliances are sold, and there are many thousands of such doors. Beyond that, as we have done in other countries, we will become available at grocery, drug and convenience stores. We expect to test these channels in 2013, and expand in 2014 and beyond.
GR: India has been targeted as a huge potential market for SodaStream. What's the strategy for the rollout there, and do you see sales following the recent success of other Asian regions (up 117% last quarter)?
DB: We will be entering India, and are excited at the prospects there. India has a long heritage with carbonation, and as a country is enjoying a rapidly growing base of strong consumer activity.
GR: South American sales weren't covered much in the latest investor presentation. How have these sales been progressing, and do you find that because SodaStream saves consumers money it sells better in lower GDP per-capita regions?
DB: Our South American activities have only just started to kick into gear, with the addition of Brazil just last quarter, and some other markets there are pending. But we do not experience any particular advantage in markets that have a specific GDP one way or the other. SodaStream is indeed a value for a consumer, but the many benefits of convenience, health and wellness and the environmental advantages speak to the entire spectrum of consumer types.
GR: The new 'Belgium' SodaStream mini store seems to be a great way to expand the SodaStream brand/consumer experience. Where are you opening more of these types of locations, and in what types of retail settings?
DB: The shop-in-shop that we have at Krefel in Belgium is one of dozens of "shop-in-shop" experiences throughout the world, across a variety of retail settings. It is a great consumer experience, to be surrounded 360-degrees by our products, videos and other point-of-sale material.
GR: SodaStream claimed in its latest presentation that it has 5.5 million active consumers. How do you define an active consumer, and about what percentage of people buying SodaStream machines begin to use consumables on a regular basis?
DB: An active user is making a liter of SodaStream at least once every two weeks, though of course so many of our users make it more frequently. And almost all of our first-time consumers follow-up with the purchases of consumables, whether it is flavors, extra bottles or the CO2.
GR: How often would a typical SodaStream user need to update their beverage machine? Every 1-2 years?
DB: Actually the soda makers themselves can last for decades, and we have seen some of these still being used in markets where we have been active for that long, such as Switzerland or Germany. However, consumers typically like to update their products, and it is common for this to occur every few years.
GR: What's behind the transition to Sodacaps, what advantages do they have over SodaStream's prior carbonation methods?
DB: The SodaCaps aren't replacing the current syrup form factor, they are a complementary option, as both ways to get flavor are important. With the syrup bottles you can choose the amount of flavor "to-taste" and this is an empowering experience that many people like. However, the SodaCap offers a faster, more efficient method to add the flavor. In addition, the taste is the same every time, since the amount of syrup is pre-measured, so there is a consistency of quality with this product. We are happy to offer consumers both options and let them decide.
GR: You're launching two new soda makers this year, the Revolution and the Source. How are these different from previous models?
DB: The Revolution lives up to its name. It is the first home soda maker that offers carbonation at the touch of a button, powered by electricity. This feature makes it easier for the consumer the achieve the exact same level of carbonation each time, choosing from low, medium, high and turbo. So the user can appreciate a consistently carbonated drink each time they choose that particular setting. In addition, it is the first soda maker where you can insert and also remove the carbonating bottle in one motion, without the need to screw it in or unscrew it to come out. This makes the system more time-efficient, as well as easier. The Source changes everything. It is a beautifully designed machine by Yves Behar which combines a contemporary look and feel with superior functionality. The entire front portion of the soda maker is responsive when pressed to begin the carbonation, and there are three LED lights that indicate to the user how strong the carbonation is getting. Also, instead of the "buzz" noise from previous models this one sounds more like a quiet whistle, providing an auditory signal as to the readiness of the drink.
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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.