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SodaStream Sees Green in Green

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Some of the marketing points behind SodaStream's (Nasdaq: SODA  ) soda carbonation systems have been shot to bits.

SodaStream's soft drinks are cheaper than branded beverages? Not exactly. It costs $2 for a 64-ounce serving between the refillable CO2 carbonators and the flavored soda syrup. Odds are that a two-liter bottle of Coca-Cola (NYSE: KO  ) or Pepsi (NYSE: PEP  ) will cost you less than that. Store brands -- which is what the SodaStream product is more comparable too -- will set soda slurpers back even less than that.

The argument that SodaStream is the next Green Mountain Coffee Roasters (Nasdaq: GMCR  ) ? Not exactly. Green Mountain's Keurig provides a product that is not only cheaper than premium brews, but also more convenient. SodaStream is facing off against cheap cans and bottles of pop that don't require a barista's touch.

SodaStream's fresh beverages taste better than bottled pop? There may be some people out there who feel that way, but I've been woefully disappointed after going through more than a dozen flavors since I bought my machine last month. I wouldn't wish SodaStream's Diet Cream soda on my worst enemy. I think a shot of Robitussin would work better than a few of the iffy diet flavors. The upshot here is that I have learned which flavors I really do like -- and I have found myself using the SodaStream more and cracking open a can of Diet Coke less.

Having said that
Now that we have that out of the way, let's go over the two selling points that are likely to make SodaStream a popular gift this holiday season.

The first marketing advantage is that SodaStream's drinks are healthier than conventional beverages, particular when it comes to non-diet flavors. A SodaStream soft drink has a third of the calories, carbs, and sugar -- and far less sodium -- than traditional soda. This matters in a country where parents are shoveling a ton of soda into their kids.

The second marketing advantage is SodaStream's eco-friendly ways. There are no empty cans or plastic bottles to recycle. The SodaStream bottles are reusable after rinsing off. Unlike many other kitchen appliances, SodaStream also doesn't require batteries or electricity. The carbonation process consists of a few manual taps.  

It didn't surprise me to see SodaStream's Crystal home soda maker winning a 2010 Green GOOD DESIGN award this week. It also didn't come as a shock that Dr. Oz singled out SodaStream -- along with Tupperware's (NYSE: TUP  ) Smart Steamer -- as healthy holiday gadgets on Monday's show.

Is that enough?

Selling your strengths
SodaStream's health and eco benefits may be enough to overcome its shortcomings elsewhere. There's a reason why Lexus and Prius cars fight for parking spaces at Trader Joe's or Whole Foods (Nasdaq: WFMI  ) .

Just like at Whole Foods, folks are willing to pay a premium on principle or if something is genuinely healthier. Smart Balance (Nasdaq: SMBL  ) has created an entire line of heart-healthy products, based on the success of its flagship buttery spread. No one is going to pick Smart Balance over butter or most margarines in a taste test. The brain outranks the taste buds, and a modest premium is more than expected.

SodaStream certainly hasn't been slowed by its value -- and arguably taste -- shortcomings. Revenue and adjusted earnings climbed 52% in its first quarterly report as a public company. It sold 449,000 systems during the quarter, and is probably selling a lot more this holiday quarter.

Is that enough? It's certainly impressive, and the stock has pulled back considerably since its post-IPO highs to create an intriguing entry point for investors who also see the value in the eco and health advantages. As long as system sales continue to climb -- with carbonators and syrup concentrate to follow -- this won't be just some 2010 holiday fad.

Is SodaStream the real deal or a passing craze? Share your thoughts in the comment box below.

Coca-Cola is a Motley Fool Inside Value recommendation. Green Mountain is a Motley Fool Rule Breakers choice. Whole Foods is a Motley Fool Stock Advisor recommendation. Coca-Cola is a Motley Fool Global Gains pick. Coca-Cola and PepsiCo are Motley Fool Income Investor picks. The Fool has created a covered strangle position on Tupperware Brands. Motley Fool Options has recommended a diagonal call position on PepsiCo. The Fool owns shares of Coca-Cola. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Longtime Fool contributor Rick Munarriz is a fan of diet soft drinks. He does not own shares in any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.

Read/Post Comments (5) | Recommend This Article (5)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 15, 2010, at 11:50 AM, bjwitcher wrote:

    My wife wanted this for her Birthday about 7 months ago. I thought it would be a complete waste of money - something we'd add to the pile of rice steamers and veggie juicers in the basement. I purchased this for her and we now BOTH use it ALL THE TIME!

    I was completely addicted to sodas from name brands and this product converted me 100% to a "soda-by-me" person. I make a couple liters every weekend and drink them throughout the week. I also have my favoriate flavors including Diet Cola, Cola, Root Beer and Lemon-Lime.

    I disagree with you strongly on the costs being more. The cost of the machine/starter kit is $99. The refills on the CO2 is $15.00 and each will create 60 liters. That's $25 per liter. If you expense the cost over the life of the machine - say 3 years - and you make 468 liters (3 liters per week) it adds about $0.21 for a total of $0.46 liter. The syrups, if you use them, add $0.41 for a total of $0.87. That's pretty competitive in my experience for soda/liter.

    My wife loves making soda and adding some real fruit juice for a light and refreshing drink that isn't filled with unnatural ingredients. This also makes a great substitute for sodas and fruit juices for our kids. They love making the drinks themselves. This is a more cost effective way to use it.

    As you pointed out, this does give me some bragging rights to say I am being green by not having those 250+ bottles/cans I went through every year. I also like that this company only sells products sweetened with Splenda - no aspartame!

    Finally, I should mention something I consider most important (and I think you touched on this): Everyone who is a guest in our home now gets to make their own soda when they come over (any flavor they like). It is a HUGE hit and a real conversation starter. After trying ours, many of our friends have purchased this, especially in the last 3 months, and many of them use their SodaStreams constantly.

    Seems like you might be heading there as well.

  • Report this Comment On December 16, 2010, at 7:54 AM, PokerRon wrote:

    The breakthrough will come when Walmart decides to stock the product. I haven't tried it, but the concept sounds like a winner - fast, convenient, healthy and green - just the thing for American families. I've taken a position in the stock.

  • Report this Comment On December 16, 2010, at 9:28 PM, ccjlw wrote:

    When Walmart sells the product the stock will probably double and they will sell oneday so they can say they are trying to go green to make the haters happy. Think about it.

  • Report this Comment On December 18, 2010, at 1:22 AM, hdotmom wrote:

    I was excited when I heard about this product as they advertise they use sugar not corn syrup. I long for a coke or pepsi but haven't had one since they stopped making the pepsi throw back. But all my excitement was killed when I read the ingredients. They use artificial sweetner in every flavor even the non-diet. Someday America will wake up and realize how bad artificial anything is when it is put in your body. If they took it out I would be the first one in line to buy it.

    Below taken from:

    Splenda is not natural; it is a chlorinated artificial sweetener. There have been no long-term human studies on the safety of Splenda; however, issues have been raised about Splenda in a new study from Duke University.

    According to the study, Splenda “suppresses beneficial bacteria and directly affects the expression of the transporter P-gp and cytochrome P-450 isozymes that are known to interfere with the bioavailability of drugs and nutrients. Furthermore, these effects occur at Splenda doses that contain sucralose levels that are approved by the FDA for use in the food supply.”

  • Report this Comment On December 29, 2010, at 3:32 PM, luckyspike01 wrote:

    My 20-something kids got this for each other for Christmas and opened it at my house ... honestly it was like having the Italian water in the restaurant ... without even using the flavor ... the next day they picked up some flavors at World Market that they can use for both sodas and coffee ... and that was great too. Very easy to use, they opened it and started using it right in front of me. Then they researched where to get CO2 refills, while I researched who makes them. Sorry I didn't get in on this IPO but don't think its too late

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