SODA - SodaStream

[moore_capital54]

Last week we decided to buy Sodastream, it is currently a small position for the fund but I intend to add on any weakness in the share price. What got us over the hump on Sodastream was the realization that just maybe they have cracked the PEP/KO moat. Reading this article will help you understand the potential:

 

http://www.bloomberg.com/news/2012-06-20/sodastream-takes-marketing-tactic-to-coca-cola-s-hometown.html

 

 

[Green King]

How are they going to sustain their castle after breaking it?

[ragnarisapirate]

I wonder what the odds of KO/PEP buying them out would be?

[Parsad]

Sodastream won't even make a dent in the softdrink market.  They will have far less impact than the generic store brand cola's did, and it won't hurt Coke or Pepsi's margins at all.  Remember Cott?  How about Jones Soda...not being sarcastic here Moore!  ;D 

 

Softdrink products remain cheap enough where the average consumer couldn't be bothered with making their own soda.  The fact that they use sugar substitutes in their products will also keep away many people, and existing products are already available for those in calorie-reduced diets or watching their blood sugar levels.  I won't be buying and I consume a fair amount of that tasty beverage!  Cheers!

[ragnarisapirate]

Sodastream won't even make a dent in the softdrink market.  They will have far less impact than the generic store brand cola's did, and it won't hurt Coke or Pepsi's margins at all.  Remember Cott?  How about Jones Soda...not being sarcastic here Moore!  ;D 

 

Softdrink products remain cheap enough where the average consumer couldn't be bothered with making their own soda.  The fact that they use sugar substitutes in their products will also keep away many people, and existing products are already available for those in calorie-reduced diets or watching their blood sugar levels.  I won't be buying and I consume a fair amount of that tasty beverage!  Cheers!

 

A few counter points:

 

COTT and JSDA were competing in a completely different way than SODA.

 

K Cups didn't have to be disruptive to do quite well.

 

I would be careful to not underestimate the environmental consciousness of people. Most will do un-economical things in order to do their part in saving the planet. The new marketing of the cage is genius. KO is really playing into SODAs hand. The big company is picking on the little guy, who is trying to help the environment play is a good one.

 

I hate to say it, but, this is one growth story that I might actually buy into.

[Parsad]

Sodastream won't even make a dent in the softdrink market.  They will have far less impact than the generic store brand cola's did, and it won't hurt Coke or Pepsi's margins at all.  Remember Cott?  How about Jones Soda...not being sarcastic here Moore!  ;D 

 

Softdrink products remain cheap enough where the average consumer couldn't be bothered with making their own soda.  The fact that they use sugar substitutes in their products will also keep away many people, and existing products are already available for those in calorie-reduced diets or watching their blood sugar levels.  I won't be buying and I consume a fair amount of that tasty beverage!  Cheers!

 

A few counter points:

 

COTT and JSDA were competing in a completely different way than SODA.

 

K Cups didn't have to be disruptive to do quite well.

 

I would be careful to not underestimate the environmental consciousness of people. Most will do un-economical things in order to do their part in saving the planet. The new marketing of the cage is genius. KO is really playing into SODAs hand. The big company is picking on the little guy, who is trying to help the environment play is a good one.

 

I hate to say it, but, this is one growth story that I might actually buy into.

 

Just like K-cups and Starbucks entering the market with their own machines, what is to stop Coke from doing the same to Sodastream?  They aren't going to just sit back and watch this unfold.  Either they counter or they buy them out.

 

As far as the environment goes, I would not count on that.  Tell me any companies that have solely profited from the environmental benefit aspect of their business and where their competition hasn't changed their practices to match?  The big guys will always come around if they see anyone making inroads.  They tend to adapt and make the necessary adjustments...in most cases anyway.  Cheers!

[moore_capital54]

Sodastream won't even make a dent in the softdrink market.  They will have far less impact than the generic store brand cola's did, and it won't hurt Coke or Pepsi's margins at all.  Remember Cott?  How about Jones Soda...not being sarcastic here Moore!  ;D 

 

Softdrink products remain cheap enough where the average consumer couldn't be bothered with making their own soda.  The fact that they use sugar substitutes in their products will also keep away many people, and existing products are already available for those in calorie-reduced diets or watching their blood sugar levels.  I won't be buying and I consume a fair amount of that tasty beverage!  Cheers!

 

We still own JSDA from the financing and have continued to add, it provides great risk reward here. Relating to SODA's moat and not putting a dent, I believe they are building a brand around the make your own soda business, and that they are the first mover in that business. I don't think PEP or KO would ever enter that business as it would confirm their existing model is flawed and would reduce their margins significantly, a more likely scenario is that one of them or maybe even an AB INBEV acquires SODA. Right now SODA machines are in millions of homes in North America. I would not discount SODA at all.

 

The SODA model is very reminiscent to the KO model whereby KO produces the syrup and sells it to the bottlers, SODA is building its bottling distribution base as we speak directly with the consumer. From there on out they become a KO by selling the bottler the syrup...

 

We don't drink Soda in our household but for someone that does I recommend you review the economics of buying a SODA machine and making your own SODA, it can save you 500-1,000 bucks a year easy...

 

 

[PlanMaestro]

Just like K-cups and Starbucks entering the market with their own machines, what is to stop Coke from doing the same to Sodastream? 

 

No dog in this fight and first time I've heard of Jones Soda. But what about channel conflicts, at least internationally?

 

Starbucks does not have to deal with strong bottlers. And in the US, Coke still has to show that they can handle the bottling logistics (Pepsi at least had Frito Lay).  This is precisely the type of innovation that must be analyzed with an open mind and not jump into conclusions since it uses Coke strengths (distribution and brand) against them.

 

And regarding Cott/Private Label .... The margins commoditized in the US. Not a win for Cott but it is still a problem for C&P. This is precisely  one of the reasons both bought their US bottlers. Big Cola not doing so bad either in Latin America.

 

http://en.wikipedia.org/wiki/Big_Cola

[hyten1]

one point i want to bring up, whatever happens to soda and the segment they are in COK already has similar technology, if coke chose to do so i am sure they can.

 

i am sure you guys have seen the new drink machines from coke in mcdonalds?

[bmichaud]

I don't think PEP or KO would ever enter that business as it would confirm their existing model is flawed and would reduce their margins significantly

 

If KO's moat is consumers' brand loyalty to the syrup, why could KO not just sell the syrup directly to us as consumers so we can make it ourselves in a "KO-branded soda maker"? As long as it tastes the exact same, I'd pay whatever it takes to buy real Coke, not some knock-off, sugar-substitute garbage. Bottom line, given the tremendous power of KO's brand loyalty, I don't see how KO couldn't protect its margins. PLUS, say you're having a huge party and you need 72 cans of Coke - who on earth would want to stand there and hand-make all 72 cans? Wouldn't whatever cost savings obtained via making it yourself be trumped by the convenience of a read-made can of Coke?

[moore_capital54]

I don't think PEP or KO would ever enter that business as it would confirm their existing model is flawed and would reduce their margins significantly

 

If KO's moat is consumers' brand loyalty to the syrup, why could KO not just sell the syrup directly to us as consumers so we can make it ourselves in a "KO-branded soda maker"? As long as it tastes the exact same, I'd pay whatever it takes to buy real Coke, not some knock-off, sugar-substitute garbage. Bottom line, given the tremendous power of KO's brand loyalty, I don't see how KO couldn't protect its margins. PLUS, say you're having a huge party and you need 72 cans of Coke - who on earth would want to stand there and hand-make all 72 cans? Wouldn't whatever cost savings obtained via making it yourself be trumped by the convenience of a read-made can of Coke?

 

Great question, the answer is very simple... By selling to you through retail distribution channels coke and pepsi are able to command a higher margin than if they were to sell you the syrup. the SODA business model is entirely built on cannibalizing the market for point of sale soft drinks.

[CONeal]

Moore keep in mind that in the early 80's Charlieo did the same thing. 

[moore_capital54]

I don't think PEP or KO would ever enter that business as it would confirm their existing model is flawed and would reduce their margins significantly

 

If KO's moat is consumers' brand loyalty to the syrup, why could KO not just sell the syrup directly to us as consumers so we can make it ourselves in a "KO-branded soda maker"? As long as it tastes the exact same, I'd pay whatever it takes to buy real Coke, not some knock-off, sugar-substitute garbage. Bottom line, given the tremendous power of KO's brand loyalty, I don't see how KO couldn't protect its margins. PLUS, say you're having a huge party and you need 72 cans of Coke - who on earth would want to stand there and hand-make all 72 cans? Wouldn't whatever cost savings obtained via making it yourself be trumped by the convenience of a read-made can of Coke?

 

Also bmichaud have you tried soda stream? I should mention that we got one for the office this week and it definitely doesn't taste like "sugar garbage" I urge you to try it...

[bmichaud]

I don't think PEP or KO would ever enter that business as it would confirm their existing model is flawed and would reduce their margins significantly

 

If KO's moat is consumers' brand loyalty to the syrup, why could KO not just sell the syrup directly to us as consumers so we can make it ourselves in a "KO-branded soda maker"? As long as it tastes the exact same, I'd pay whatever it takes to buy real Coke, not some knock-off, sugar-substitute garbage. Bottom line, given the tremendous power of KO's brand loyalty, I don't see how KO couldn't protect its margins. PLUS, say you're having a huge party and you need 72 cans of Coke - who on earth would want to stand there and hand-make all 72 cans? Wouldn't whatever cost savings obtained via making it yourself be trumped by the convenience of a read-made can of Coke?

 

Great question, the answer is very simple... By selling to you through retail distribution channels coke and pepsi are able to command a higher margin than if they were to sell you the syrup. the SODA business model is entirely built on cannibalizing the market for point of sale soft drinks.

 

So is SODA's syrup the equivalent of a $1 can of Coke or thereabouts? Just seems like the price difference isn't great enough to induce me to switch. It's one thing to go from a $5 latte at SBUX to a $1 K-cup (pulling numbers out of the air) but from a $2 can of Coke down to $1?

[bmichaud]

I don't think PEP or KO would ever enter that business as it would confirm their existing model is flawed and would reduce their margins significantly

 

If KO's moat is consumers' brand loyalty to the syrup, why could KO not just sell the syrup directly to us as consumers so we can make it ourselves in a "KO-branded soda maker"? As long as it tastes the exact same, I'd pay whatever it takes to buy real Coke, not some knock-off, sugar-substitute garbage. Bottom line, given the tremendous power of KO's brand loyalty, I don't see how KO couldn't protect its margins. PLUS, say you're having a huge party and you need 72 cans of Coke - who on earth would want to stand there and hand-make all 72 cans? Wouldn't whatever cost savings obtained via making it yourself be trumped by the convenience of a read-made can of Coke?

 

Also bmichaud have you tried soda stream? I should mention that we got one for the office this week and it definitely doesn't taste like "sugar garbage" I urge you to try it...

 

haha I'll give it a shot. I was skeptical of K-cups but I'm addicted now lol

[hyten1]

coke already has the commercial equivlent of this that they are selling, go to mcdonalds.

 

i can see all fountain drinks in the future using this technology/method (in resturants, etc etc), coke is already doing this.

 

now the consumer channel that is different

 

i don't know the details regarding sodastreams commercial penatration vs cokes

 

moore any info on that commercial vs consumer?

[hyten1]

bmichaud

 

any thought on gmcr? i am looking at it right now as a long idea, have not made up my mind. sodastream and gmcr are both similar.

 

hy

[hyten1]

here is a info on coke freestyle

 

http://en.wikipedia.org/wiki/Freestyle_(Coca-Cola)

[txlaw]

I don't know much about this company, but I just went to the Sodastream USA website because Moore piqued my curiosity.

 

It looks like this company sells: (1) a home carbonation machine; (2) BPA-free bottles; (3) CO2 canisters; and (4) flavors (some of which are from relatively famous brands).

 

All the system seems to do is carbonate tap water.  After the patents expire (presumably, they've patented their "system"), the home carbonation system becomes like a toaster (i.e., an appliance).  Anyone will be able to make a carbonation machine and bottles to fit it. 

 

The CO2 canisters become a refill business that doesn't seem to be that hard to get into.  It's not like these guys are making printer ink/cartridges (or K cups).  If I were Walmart or Walgreens or HEB (Texas grocery store), I might be looking around for people who want to provide CO2 canisters on a commodity price basis.  Or maybe SODA already provides CO2 canisters at a cut rate margin?

 

And the flavors . . . why would anyone go through SODA to buy the flavors?  Why wouldn't Walmart or HEB or Walgreens just stock branded "soda mix" by selling distribution space directly to the "soda mix' providers?  After all, it looks like you just stir soda mix into the carbonated water.  Or to go further, why would people necessarily even use "soda mix" with this thing?  Hell, I might put pomegranate juice or real ingredients into the carbonated water instead of using some crappy "soda mix".

 

I guess I'm not getting why we're analogizing this company to Coke rather than to Green Mountain Coffee Roasters or to KitchenAid. 

[hyten1]

txlaw i agree

 

question is have drinks become commodity now where instead of wanting coca cola, people will settle for some generic coke? or whatever flavor type of drink you want to use. i don't think so that is why coca cola is still coca cola.

 

i can see sodastream sell branded drinks, which begs the question, in this senario soda still need to pay to companies like coca cola.

 

if sodastream is just the machine/system that mixes the drink (think of traditional coffee maker) then that does not seem like a great biz.

 

coca is already doing mix drinks in the commerical space.

[hyten1]

at the end of the day people want their drinks, they can get it in a bottle or mix it with a machine or whatever other way

 

sure they will be people who don't care the coke is coca cola (that is why generic brand still exist). however many do care.

 

 

- there are drinks (brands)

- there are ways of getting those drinks (buy bottles, vending machine, resturants)

 

at the end of the day drink delivery might change (they are already, coke is already doing it) but the drinks (brands) will stay. new brands might come and old ones might die.

 

but i do think coke should get into this space, their is a reason why coke is also involve in the traditional drink vending biz, which they still are.

 

[Green King]

Free Style Coke

[bmichaud]

Good Lord I wouldn't touch gmcr with a ten-foot pole. Soon as sbux comes out with their own k-cups I'll never go back. I don't see how gmcr's long-term earning power could be reasonably determined given the ease of entry for sbux...

[oddballstocks]

Just mentioned this to my wife, here's how the conversation went:

 

Me: "Have you ever heard of SodaStream?"

Her: "Yeah they sell it at Bed Bath and Beyond"

Me: "What do you think?"

Her: "Why would anyone buy it? It's just generic cola, unless Coke or Pepsi gets a contract I don't understand why you'd want it."

 

So... take it for what you will

[Parsad]

I don't think PEP or KO would ever enter that business as it would confirm their existing model is flawed and would reduce their margins significantly

 

If KO's moat is consumers' brand loyalty to the syrup, why could KO not just sell the syrup directly to us as consumers so we can make it ourselves in a "KO-branded soda maker"? As long as it tastes the exact same, I'd pay whatever it takes to buy real Coke, not some knock-off, sugar-substitute garbage. Bottom line, given the tremendous power of KO's brand loyalty, I don't see how KO couldn't protect its margins. PLUS, say you're having a huge party and you need 72 cans of Coke - who on earth would want to stand there and hand-make all 72 cans? Wouldn't whatever cost savings obtained via making it yourself be trumped by the convenience of a read-made can of Coke?

 

Great question, the answer is very simple... By selling to you through retail distribution channels coke and pepsi are able to command a higher margin than if they were to sell you the syrup. the SODA business model is entirely built on cannibalizing the market for point of sale soft drinks.

 

So is SODA's syrup the equivalent of a $1 can of Coke or thereabouts? Just seems like the price difference isn't great enough to induce me to switch. It's one thing to go from a $5 latte at SBUX to a $1 K-cup (pulling numbers out of the air) but from a $2 can of Coke down to $1?

 

Let me ask everyone a couple of questions here: 

 

- What did Starbucks do when McDonalds started selling gourmet coffee?  Their margins shrunk after they dropped the price on their hand-made drinks and brewed coffee. 

- What happened to Coca-cola's margins when Walmart started selling their own brand of Cola and Sodastream started selling their carbonated beverage machine?  Nothing! 

 

People don't go into Starbucks and ask for a "Starbucks mocha"...they ask for a "mocha".  When people go into McDonalds or pretty much every other restaurant in North America, they ask for a "Coke"...not a "carbonated cola".  Waiters and waitresses around the world are taught to say "Sorry, we only have Pepsi, is that ok?"  An apology because they don't have Coke...how would you like to be Pepsi?  ;D  The ugly sister with two left feet, even though if you look at their list of ingredients, you would assume they are nearly the same!  Sodastream is just another ugly sister and this one has even less to offer!

 

You cannot discount the brand or the Coca-cola taste, as well as every other nostalgic impulse that comes to our minds when we order a Coke.  There only a few things in life that we do that with, and none have such a dominant market share or are as ubiquitous in our daily life...Band-Aid is another but not nearly as universal or global, and certainly not as impregnable.  I'm sure there are a few more examples.  But you go to any part of the world and say the word "Coke" and people know exactly what you want.  No one has a moat like Coca-cola!  Cheers!