Beverages

SodaStream Markets a Soda Fountain for the Kitchen


When London gin distiller George Gilbey began selling British aristocrats do-it-yourself gadgets to carbonate tap water in 1903, the emphasis was on function, not style. Even by 1955, when the first mass-market version was introduced, the soda machine resembled a miniature scuba tank. SodaStream International (SODA), a successor to Gilbey’s venerable enterprise, last year pumped up its marketing in the U.S. of sleek countertop versions. Buzz about the $80-$200 appliances, which can turn tap water into over 100 flavors of soda in refillable bottles, has helped drive up SodaStream’s share price 218 percent since its initial public offering eight months ago. “In 20 years,” says Chief Executive Officer Daniel Birnbaum, “the soda industry will not be the same.”

Persuading the masses to embrace homemade soda will take some doing. Getting people to buy the appliance is one thing; getting them to keep buying syrup refills and carbon dioxide canisters is another. As with razors, refills are where the real money lies. But men have to shave. They don’t have to drink soda.

SodaStream is now in 4.5 million homes in 41 countries. After stepping up distribution in the U.S. late last year, its updated soda makers sold out during the holidays at some Bed Bath & Beyond (BBBY) stores. “It’s fantastic,” says Jim Sinclair, a financial planner in Tybee Island, Ga. “If you have guests coming over, you don’t have to buy a 24-pack to keep them happy.”

Although SodaStream’s concept is more than a century old, over the years its popularity has waxed and waned, peaking in the 1970s and 1980s. By the late 2000s, SodaStream had won a solid niche in Europe and was making some headway in the U.S. That’s when Israeli private equity firm Fortissimo Capital got interested, seeing a way to profit from converging trends: a backlash against plastic bottle waste, resistance to empty calories and childhood obesity, and recession-induced cost-cutting. So Fortissimo pumped $17 million into SodaStream and hired Birnbaum, a former marketer at Nike (NKE), Procter & Gamble (PG), and Pillsbury, to revamp the company.

He added a lower-cost device while maintaining designs that appeal to style-conscious consumers. “The kitchen counter is precious real estate,” Birnbaum says. “To earn a space you have to look dynamite.” They also made the gadget simple to use: Just push a button to inject water with carbon dioxide and add flavored drops or syrup.

The syrups were reformulated with all-natural ingredients, without high fructose corn syrup, and with less sugar. Birnbaum also boosted the environmental pitch, telling consumers that buying SodaStream products means fewer plastic bottles and aluminum cans in landfills. (A counter on the company’s website claims SodaStream use has saved the world 1.28 billion bottles.) That strategy helped boost global first quarter sales 50 percent to $64 million. Still, Richard J. George, a food marketing professor at Saint Joseph’s University in Philadelphia, says soda appliances may have limited appeal because consumers like freshness and convenience, both of which already have been perfected by big beverage makers at a reasonable price. “You just reach in your refrigerator and grab your soft drink,” he says.

It may be especially hard to convince convenience-addicted Americans to get into the habit of reordering syrups and exchanging carbonation cylinders once they run out of gas. Of 6,000 SodaStream retail locations in the U.S. (there are 45,000 worldwide), just 3,000 currently exchange CO2 canisters, though customers can reorder online. Nor can SodaStream boast a significant price advantage: Two liters of its drinks cost about $1.30, vs. about $1.50 (full-price) for the same amount of Coke. “We don’t want to be the poor man’s water,” Birnbaum says. “We’re not a cheap alternative.”

Birnbaum concedes that his company will never overtake giants Coca-Cola (KO) and Pepsi (PEP). Instead, he would like to co-brand soda that could be delivered in SodaStream machines—a strategy that has worked handsomely for Green Mountain Coffee Roasters and its Keurig brewing system. For now, Birnbaum wants to develop a device for offices, and brand restaurant soda fountains and table carafes with the SodaStream logo—and then supply healthy syrups. He also wants U.S. grocery and drugstores to carry SodaStream syrups, as they do in some European markets. First, he’ll have to win more of that precious kitchen counter space.

The bottom line: SodaStream faces an uphill battle to carve out a niche in the $233 billion soft drink market, but shares have risen 218 percent in eight months.

With Leslie Patton
Stanford is a reporter for Bloomberg News in Atlanta.

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Companies Mentioned

  • SODA
    (SodaStream International Ltd)
    • $21.15 USD
    • -0.05
    • -0.24%
  • BBBY
    (Bed Bath & Beyond Inc)
    • $75.5 USD
    • -0.08
    • -0.11%
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