How SodaStream Could Increase the Flow of its Profit Stream
Scott is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
On a recent trip to replenish the CO2 for my SodaStream (NASDAQ: SODA), I found myself in line behind 2 people. The first was a woman, who had received a Cuisinart soda maker as a gift. She wasn’t happy with it, so she had brought it back to the store in order to return it. She wanted a SodaStream instead.
Having overheard the woman, the gentleman in the line informed her that she was making the right decision. He loved his SodaStream, and it just so happened that he was there, like me, to replace his empty CO2.
I’m not one to believe in coincidences, but I had watched the controversial Super Bowl commercial earlier that day, and I had read several articles about the company earlier that week.
So, I decided to add SodaStream to my watchlist while waiting in the line.
Attempting to do some market research, I commented to the cashier how funny it was that all three customers were there because of their SodaStreams. She, very enthusiastically, informed me that people came in all of the time in order to replace their CO2.
This year, SodaStream will be releasing SodaCaps -- a single serve, flavor delivery system, which attaches to a one-liter bottle. This addresses the frustrations of people who, like me, have tried using the syrups and found the process of pouring them into the soda bottles a little messy.
Representative of the “razor and blades” model, SodaStream should benefit nicely from this product in that they will be selling many more “blades” -- one per liter of soda. To put this in perspective, one bottle of the syrup yields approximately 12 liters of soda (or 33 cans).
But, there’s no reason to stop there.
Bubbling over with possibilities
SodaStream is often compared to another single serve beverage maker -- Green Mountain Coffee Roasters (NASDAQ: GMCR). However, the comparison between the two companies falls apart when one recognizes that Green Mountain’s K-Cups produce an individual portion -- a single cup of coffee. . . not a single pot of coffee. This limits the consumer's options in using their product. I know this drawback well. When we host family events, my wife and I are incapable of using our Keurig to brew coffee after dinner-- we're forced to lug out the automatic drip coffee maker.
And, we're not alone. When we attend family dinners at other people's houses, we notice the same thing: the Keurig is pushed to the side, and the drip machine is dragged out.
How many more K-Cups (or variation thereof) would Green Mountain be able to sell if they could address this shortcoming?!
Although SodaStream's new SodaCaps are a good first step, they shouldn't stop there. Instead of offering SodaCaps that produce one liter of soda, they should offer “caps” that produce a single can-sized portion of soda-- continue driving forward, unlike Green Mountain who is idling in neutral.
There are two benefits to this offering. One, a new market is created: a market for 12 oz. bottles, which accommodate the smaller, individual portion SodaCaps. Two, this enables consumers to travel with these bottles -- to pack these bottles with their lunches, for instance. It’s much easier to travel with a soda can sized bottle instead of a liter sized bottle.
Recently, SodaStream has been increasing its partnerships with other beverage companies such as Crystal Light, Kool-Aid, Country Time Lemonade, V8, and Ocean Spray. And, entering the energy drink market, SodaStream formed a partnership with EBOOST. No reason to stop now though.
Starbucks (NASDAQ: SBUX) also made a foray into the energy drink market recently, with the launch of the Refreshers product line in 2012. This drink distinguishes itself from other energy drinks in that the caffeine is derived from green coffee extract. Since Starbucks has a K-cup offering, why not a SodaStream offering as well? And, like the K-cups, the Starbucks SodaCaps could be offered at a higher price point.
Energy drinks are not the only opportunity for a partnership between SodaStream and Starbucks though. In the past year, Starbucks has made two interesting acquisitions: Teavana and Evolution Fresh. What exact types of products Starbucks could offer for the SodaStream maker is unclear, but if Starbucks could invent energy drinks made with green coffee extract, I have no doubt that they could come up with something interesting.
No Reason To Flatten Out
Although the stock price might not reflect it at the moment, SodaStream is building a lot of momentum. For the year ended Dec. 31, 2012, revenue increased 51% and net income increased 59.6%. They have recently formed many strategic partnerships, which should help them considerably in the future -- but many more exist, and there’s no reason to think that they’re done exploring these other options. It seems that this stock is ready to explode -- like a shaken, unopened can of soda.
Scott Levine owns shares of Starbucks. The Motley Fool recommends Green Mountain Coffee Roasters, SodaStream, and Starbucks. The Motley Fool owns shares of SodaStream and Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!