Don’t Underestimate The Power Of SodaStream

PepsiCo was recently reported to be in negotiations to buy the do-it-yourself (DIY) Israeli soft drinks company SodaStream for about US$2bn. SodaStream sells machines that allow consumers to turn tap water into carbonated water before creating their own soft drinks with flavouring. In our opinion, a key appeal here would be the success SodaStream has enjoyed in the US, where it is listed on the NASDAQ and where its sales doubled in 2012. 

Global annual sales in the year to December 2012 were US$436mn, and SodaStream is looking to grow this to about US$1bn by 2016, which would imply a compound annual growth rate (CAGR) of 23%. To provide some context, we forecast the value sales of carbonated soft drinks in the US growing at a CAGR of just 1.3% over the same period.     

SodaStream’s NASDAQ-listed shares are up by more than 100% over the past year. In our opinion, for PepsiCo to incorporate this fast-growing business to its US portfolio would represent an exciting addition to its soft drinks business, especially given that the market for traditional fizzy drinks in the US has been on a negative growth course for a few years now – which makes the potential acquisition of SodaStream somewhat ironic. While international growth markets such as Russia are increasingly important, the US still accounts for about half of PepsiCo’s sales, so finding new avenues for growth is crucial.

In PepsiCo’s first quarter results to March 2013, sales of beverages in the US declined by 3% year-on-year, which continued to underline the declining appetite for traditional sugary carbonates. It seems that the customisation that SodaStream provides has been a key ‘USP’ in the US. You can decide on the degree of carbonation and how much syrup to use, not to mention the convenience of making soda when you want at home. SodaStream has also benefited greatly from being a first-mover in the DIY soft drinks market.

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