Rethinking SODA

When you think of carbonated beverages, a few things come to mind

• We, as a society consume lot of it.
• They create enormous amount of recyclable waste
• Their health benefits are debatable
• A handful of brands control the retail shelf space and hence most of the market

As shown in the above image, Carbonated beverage market is huge and SodaStream is here to disrupt the market. Please watch the following commercial to get a sense of what they are trying to do.

SodaStream manufactures and sells Soda makers, Carbonating bottles, CO2 refills, and flavors through 60,000 retail stores across 45 countries. Consumers would make a one time investment in Soda makers and Carbonating bottles and CO2 cylinder and recurring purchase of consumables ( flavors and CO2 refills). This allows a consumer to make soda at their own convenience. They have their own version of cola, diet cola and energy drink flavors and have also partnered with number of other brands such as Kraft. Their versions of Cola  do not contain High Fructose Corn Syrups like most drinks do in the United States.

Here’s a commercial on their newest Soda maker designed by Yves Behar.

SodaStream has been steadily growing their installed base of Soda maker units. Here is a chart showing last four years of growth, taken from Soda Stream’s investor presentation.

Business Model

  SodaStream business model is often compared to a razor/razor blade model. Razor in this case being the Soda makers and razor blade being the flavors and Co2 refills. In my view,SodaStream is essentially selling you a carbonation platform. What you make with it is up to you. This is some what similar to iPhone launch. They essentially opened mobile computing platform and made it available to the developers and consumers. In my view, changes in the beverage industry will not be as dramatic as the changes in mobile phone industry. But SodaStream is definitely helping consumers to live a more healthy and sustainable living.

For any beverage brand to grow, it requires a lot of investment in to marketing, manufacturing, distribution and Human resources. Most importantly they have continuously compete for the shelf space at the retailers and the share of consumer’s stomach. Many new beverages do not make it big or fail either due to lack of resources or due to missteps in executing their strategy.

SodaStream platform could alter the traditional go-to-market strategy of new brands. Instead of building(or) partnering with bottling plants and creating extensive distribution network, they could sell flavors directly in partnership with SodaStream. This dramatically changes the economics of the new brands. Coca Cola was traditionally in the business of selling syrups to the bottlers.  Let’s take the example of a company like Jones Soda, while it has a loyal following of customers, it has been struggling to make money for years. Perhaps, SodaStream platform could be a way for them to scale their brand to the national market.

Competition

Any new revolutionary product attracts competition. SodaStream is already competing with couple of other brands in the European market. As of now in the United States, Soda Stream is the only brand that is synonymous with home soda making. It is very likely that other companies will try to make inroads with their own soda makers. SodaStream’s CEO Daniel Birnbaum seems to think that it would actually help to grow awareness and hence make the pie bigger. He seems to think that their real competition is big beverage companies like Coca Cola, or Pepsi. I agree with this view.

Incentives

For any business to be successful it is important to offer right incentives to all the stakeholders. In the case of SodaStream

•  It appeals to the consumer by providing a healthy, convenient and cheaper alternative to traditional method of consuming carbonated beverages. Soda Stream consumers do not have to deal with countless amount of bottles and cans.
•  It appeals to the its retail partners by bringing back the customer for CO2 refills and flavors. Retail partners see more customer traffic and revenue.
• It offers other beverage vendors, an effective way to scale their brands.

In my view, SodaStream is revolutionizing the beverage industry and a soda maker may become a must-have item in every kitchen.