Earlier in the month I wrote a piece called “SodaStream is a Fad.” It prompted a response from Motley Fool’s Rick Munarriz, a Sodastream International Ltd (NASDAQ:SODA) bull (his piece was aptly titled “SodaStream is NOT a Fad”).
Without rehashing my original argument (I have serious doubts about the company’s business), I’ll offer a retort to the counter-points raised by Mr. Munarriz.
SodaStream is not Green Mountain Coffee
In recent months, Sodastream International Ltd (NASDAQ:SODA) bulls have become fond of comparing the company to Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR). Once — when things weren’t looking so good for Green Mountain — this comparison was more often made by SodaStream’s bears.
But now, with shares of Green Mountain back near $80, and David Einhorn nowhere to be found, SodaStream’s bulls are jumping over themselves to make the comparison. The implication is, of course, that Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) (itself a small appliance maker) was able to crush its critics — Sodastream International Ltd (NASDAQ:SODA) can too!
Yes, both companies make small, relatively innovative home appliances. And they both use the razor/razor blade business model. But the comparison ends there.
Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR)’s machine, the Keurig, took a daily activity for many — brewing coffee — and improved upon it. Buying a Keurig and using K-Cups is far more expensive than traditional methods, but it’s also far more convenient.
One of the all-time greatest Super Bowl commercials was Reebok’s Terry Tate, Office Linebacker. The ad played on an experience most office workers are all too familiar with — that annoying realization that the coffee pot is empty, and you’ll have to wait 10 minutes for another one to brew. The Keurig is an easy solution to this conundrum.
US household penetration for the Keurig is about 13%, and management expects it to grow 25-30%. That doesn’t seem unreasonable — as long as consumers are OK with the associated K-Cup costs, the Keurig experience is generally superior to alternatives.
But SodaStream is asking US consumers to make the switch to something different. Unlike coffee, most consumers have never made their own soda — they’ve bought it in cans or bottles their entire lives.
As I’ve written previously, there isn’t much incentive for US consumers to make the jump. Soda is inexpensive and conveniently distributed. There is no real problem for Sodastream International Ltd (NASDAQ:SODA) to solve.
The Europeans are different than you and me
Rick defends SodaStream by citing European household penetration numbers. The 10%+ figure (and growing) is certainly impressive, but largely irrelevant. When it comes to soda, the US and European markets are literally an ocean away.
Economist Tyler Cowen, on his blog Marginal Revolution, once tried to tackle the question, “Why is Coca-Cola so Expensive in Germany?”
In Europe, soda is about 2-3 times more expensive than in the US, and it’s unheard of for a restaurant to offer unlimited refills. Unfortunately, Cowen wasn’t able to come to a definitive conclusion, but possible reasons include different national sugar policies, taxes, and higher labor costs.
A similar question was posed to the Quora community. Besides the aforementioned regulatory hurdles, there’s the possibility that Europeans might just have different desires when it comes to consuming sugary water.
At any rate, it’s quite clear that the American and European soda markets are different — so trying to project European Sodastream International Ltd (NASDAQ:SODA) figures on the US market just doesn’t make sense.