It Is All About Planning Right

Eshna is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

The more I look at SodaStream’s (NASDAQ: SODA) plan of action the more optimistic I become about this company. It is not an easy task that it has chosen for itself, challenging stalwarts of the beverage industry like Coca Cola (NYSE: KO) and PepsiCo (NYSE: PEP). I always thought that SodaStream is a wildcard and how true this is turning out to be. The company is expanding globally, revamping its product line-up, and adding more flavors to its already burgeoning list. While the first quarter earnings are still a month away, let us examine SodaStream’s growth drivers.

Plan 1 – Innovate product line up
For SodaStream key to driving sales is its constant product innovation. Take for example the re-vamped Source machine. In its new avatar the machine has the whole of its top surface touch sensitive, it sports a convenient LED display to check the carbonation level, has new Snap-Lock bottle mechanism, and a refillable CO2 canister. Of course it has a smart and sleek look that is signature Yves Béhar.

The new Source machine has sparked interest and holds good potential. Sales are already ahead of the Fizz machine launched in 2011.

Meanwhile, Yaron Kopel, SodaStream’s chief innovation and design officer, is talking about the Sodacaps – the next big thing due for launch later in the year. These would be disposable capsules that would dispense single servings in flavors of choice. This is a great move as the sale of disposable capsules will nicely supplement the earnings from the core machines.

Plan 2 – Add variety
SodaStream is also attracting attention with constant new flavor additions. Flavors debuting in the US include Diet Cherry Cola, Diet Cola with Lime, Diet Grape, as well as the much awaited V8 Fusion and V8 Splash.

The company will introduce a new Kraft flavor syrup –Country Time Pink Lemonade. In the UK SodaStream has added eight new flavors including Dr. Pete and Diet Dr. Pete.

Plan 3 – Expand globally
Thus it is no surprise that SodaStream is the undisputed market leader in soda machines and is rapidly growing its global footprint. The company has started selling in Poland, Romania, and Russia while growing its popularity round the globe. It has presence in 45 countries including France, Japan, Brazil and other Latin American countries like Ecuador, Peru, Venezuela, Argentina, etc.

Recently, SodaStream is facing some competition from Cuisinart which launched its soda maker in late 2012. CEO Daniel Birnbaum spent considerable time speaking on the topic in the third quarter earnings call. However the responses to Cuisinart machines have been somewhat tepid and it will be some time before they can set up their distribution channels. So it will take time for them to catch up. We will look ahead to see how the launch of Hamilton Beach soda maker goes.

It is time to take a pause and see how the big boys of the beverage market – Coca Cola and PepsiCo are faring. Both Coca Cola and PepsiCo are venturing into businesses outside their traditional fizzy drinks. 

In the last reported quarter, Coca Cola saw 9% rise in volumes of its non-carbonated beverages. It is witnessing good demand for its sports drinks, packaged water, ready-to-drink tea, etc. In fact its 1% volume growth in the fourth quarter primarily came from PowerAde sports drinks. Gold Peak and Honest Tea are also quite popular in North America and fueled a 16% increase in overall tea volumes.

Coca Cola has recently acquired the European juice brand Innocent, which will significantly increase its exposure in the juice segment. This is turning out to be a winner for the Cola king as Innocent has reported a whopping 36.6% rise in sales value in 2012. 

In the non-carbonated segment PepsiCo also has cult brands like Gatorade and Tropicana in its portfolio. It witnessed a 2% overall growth in beverage volumes in the fourth quarter. The company has recently launched its new “breakfast drink,” Kickstart. This is an energy drink variant but with lower caffeine content.

PepsiCo is more insulated from the declining soda sales in the US on account of its thriving snack foods business. It saw a 4.5% volume growth in its snacks business which is more than double its beverages growth. Again the company has cult brands like Lays and Quaker which are driving sales.

Way ahead
Growing health concerns like obesity, heart problems are discouraging Americans to drink soda and sale of fizzy drinks are falling. However, the US is a great soda drinking nation with the world’s highest per capita consumption of 165 liters annually. Thus there is huge market lying open in the US alone for the likes of SodaStream who promises the same soda experience at almost one-third the calories.

The company is well aware of this potential and playing its card right. It is slowly increasing its penetration of the US markets with innovative products and flavors. At the same time it is also building a global brand by exploring more and more markets across the world. 

Eshna De has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola, PepsiCo, and SodaStream. The Motley Fool owns shares of PepsiCo and SodaStream. 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!

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