Disruptive companies tend to draw a lot of fanfare. These companies, which threaten established, mature industries with innovative products or services, have both strong advocates and detractors. One such company that's been getting some attention lately is Sodastream International Ltd (NASDAQ:SODA). If the niche product which they offer can become mainstream, then the company could see fantastic growth ahead. But that's a big IF.
What Do They Do?
SodaStream in an Israeli company founded in 1903 which manufactures a consumer device which allows one to make carbonated drinks, such as soda. A version of the machine is pictured below.
The machine has been selling in Europe for decades and has achieved between 5% and 15% market penetration in many western European countries. About 20% of households in Sweden own a SodaStream device, making it the company's best market. After its IPO in 2010 SodaStream started targeting the United States for expansion, with systems now selling in stores like Wal-Mart Stores, Inc. (NYSE:WMT), Bed Bath & Beyond Inc. (NASDAQ:BBBY), and Macy's, Inc. (NYSE:M). Since the device requires a reusable bottle the company has been marketing it as an environmentally friendly alternative to traditional sodas which come in plastic bottles an aluminum cans.
This puts SodaStream in direct competition with the big soda companies like The Coca-Cola Company (NYSE:KO) and PepsiCo, Inc. (NYSE:PEP). Coca-Cola recorded TTM revenue of $47.6 billion while PepsiCo recorded $65.7 billion, although only half of PepsiCo's revenue is from beverages. Just from these two companies the total beverage revenue is around $80 billion per year. Clearly, the market is enormous. SodaStream recorded revenue of $389 million in the TTM period, and that number has been growing quickly in recent years as the company expands. But is SodaStream really a threat to the beverage industry?
It seems to me that there are three reasons why someone would want to make their own soda at home:
I'll deal with each of these in turn.
By replacing traditional soda purchases with the SodaStream the consumer goes through far fewer plastic bottles each year. According to reuseit.com about 2.5 million tons of plastic bottles were thrown away in 2008. Plastics take a long time to break down and does so in a way which can contaminate soil and water. So from an environmental standpoint, SodaStream offers a great solution.
The problem is that only a small fraction of the population cares enough about the environment to actually modify their behavior. People still buy bottled water in droves (spending an estimated $100 billion in 2006) even when water comes out of their tap for free. There's certainly a market for the SodaStream here, but I don't think it's all that big.
The soda that a SodaStream machine makes has fewer calories and less sugar than store-bought sodas. This is because the syrups used contain both sugar and Splenda, with diet syrups available with only Splenda. To call this "healthier" than traditional soda is a little dubious. There really haven't been long-term studies on the effects of consuming artificial sweeteners, and truly health conscious consumers try to avoid both sugar and artificial sweeteners all together. Chances are they're not drinking soda to begin with. So I honestly don't see much of a market here.
The main benefit of making something at home as opposed to buying it in a store is to save money. It costs a lot less to cook a meal at home than to buy a comparable meal at a restaurant; otherwise very few people would cook. The SodaStream involves the initial purchase of the machine and periodic purchases of the syrups and CO2 canisters.