SodaStream Heats Up The Soda Wars

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I've been an avid follower of SodaStream (NASDAQ:SODA) stock for most of its public history (in the US), and I've written extensively on the name. I like the company's growth prospects, but I haven't been the biggest cheerleader in terms of the stock. Short sellers have continued taking down the name, despite the company continually beating estimates and trading at a very reasonable valuation given its growth potential.

Now SodaStream is trying to become the next greatest thing in the soda industry. Their machines allow you to make soda at home, instead of constantly buying products in the store. Yes, you occasionally need to get a replacement CO2 cartridge, but each SodaStream drink mix has enough for 33 cans. That not only saves you space, but customers also like the convenience the product provides. The debate will rage on about the cost compared to traditional sodas, but for now, in my opinion, SodaStream's products cost a little more.

Now, SodaStream is trying to take on Pepsi (NYSE:PEP) and Coca-Cola (NYSE:KO), the two established giants in the industry. SodaStream has greatly expanded its product offering, and is getting into more and more US retail locations, including the recent announcement of entry into Wal-Mart (NYSE:WMT).

The cola wars have heated up, but it appears SodaStream has really taken things to the next level. In a recent article I read from Forbes, the author points out that SodaStream is refusing to comply with a cease and desist letter from Coca-Cola in South Africa. The argument is over an outdoor marketing campaign, which SodaStream has titled "The Cage". You can see a picture of "The Cage" in the above linked article. Basically, SodaStream creates a cage, which is filled up with a number of bottles and cans. The point of the cage is to show how much a family uses, in terms of soda bottles and cans, over a period of time. SodaStream points out that most of those bottles and cans end up in dumps and waste sites.

SodaStream's CEO laughs at the letter, and the following two quotes show his view of the matter (all quotes in this article have been taken from the Forbes article).

If they claim to have rights to their garbage, then they should truly own their garbage, and clean it up. Instead of getting a thank you for cleaning up, we're getting a lawyer's letter.

We find it incredulous that Coke is now re-claiming ownership of the billions of bottles and cans that litter the planet with their trademarks. In that case, they should be sued in the World Court for all of the damage their garbage is causing.

Coca-Cola South Africa has provided the following statement:

Coca-Cola South Africa has registered its complaint in the interest of protecting Coca-Cola trademarks against any infringements in the South African market. Coca-Cola is a leader in recycling and sustainable packaging as demonstrated by our aggressive goal to collect the equivalent of 50 percent of the bottles and cans we sell globally by 2015.

Coca-Cola South Africa is a member and founder of PETCO, South Africa's PET recycling company, and is involved in the collection and responsible disposal of our PET plastic bottle post-consumer consumption. It is also a partner of Collect-a-Can, which has one of the highest beverage can recovery rates in the world. In 2011, Coca-Cola South Africa launched PlantBottle packaging, which is PET plastic made from up to 30 percent plant material and remains 100% recyclable.

So, who is right and who is wrong? Well, there may not be a clear answer to that question. SodaStream does save a lot of bottles and cans from ending up in the trash, but Coke has tried to be a worldwide leader of recycling programs. I'm not picking a side in this fight, although I think that SodaStream's CEO could have toned down his comments a bit. He probably should have just let the company's legal department handle the matter, rather than just come out and say what he was thinking. Probably not the best idea.

Now remember, before you think SodaStream is starting to "stick it to the man", and by man I mean Coke and Pepsi, remember how small SodaStream actually is. SodaStream revenues are estimated to be about $384 million this year, while Coke is expected to come in at $48.44 billion and Pepsi at $67.26 billion. Yes, Coke and Pepsi do more than just soda, but you get the scale of the dogs in the fight.

I don't blame SodaStream for trying to take on the big boys. They've got to do it at some point. In fact, this move might work out in the short term. The cage idea seems to be brilliant, and will highlight the eco-friendliness of their products. This marketing buzz will probably attract some new customers, and that won't be a bad thing. I think this could provide some gains for the rest of the year, which is why I like the stock here or a little lower. This news is a short term positive, but may be a long term negative. We've seen some small soda names try to take on the big boys, for instance Jones Soda (NASDAQ:JSDA). The small guy usually doesn't win. Will SodaStream? Only time will tell.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in SODA over the next 72 hours.