SodaStream Gets Krafty

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SodaStream (Nasdaq: SODA  ) is more powerful than naysayers think.

Shares of the company behind the popular home-based beverage system rose 5% yesterday after it struck a deal with Kraft Foods (NYSE: KFT  ) that will find Crystal Light diet drinks and Country Time lemonade available as co-branded flavors for SodaStream's fizzed-up water.

This deal is huge for two meaty reasons.

The first important takeaway is that Kraft -- a global giant with nearly $50 billion in annual sales -- should help open doors for SodaStream in the retail grocery space. SodaStream has been expanding its base of distributors since the Israeli's company stateside push began in 2010. A phenomenon that began at home-goods retailers has spread to include office supply superstores, warehouse clubs, cheap-chic discount department stores, and even the country's leading consumer electronics chain.

The missing link has been penetrating grocery stores, but Kraft's household name should help open more than a few automatic sliding doors at major supermarket operators when the new SodaStream syrups hit the market next quarter.

The other reason investors need to take this seriously is because Kraft didn't need to play nice with SodaStream.

Investors like to compare SodaStream to Green Mountain Coffee Roasters (Nasdaq: GMCR  ) , but it's an unfair pairing. Green Mountain's patent-protected K-Cups make it legally impossible -- for the next few months, anyway -- for an unauthorized third party to sell flavored coffee refills for Keurig single-cup brewers. SodaStream has a proprietary carbonator system that needs to be replenished, but there's nothing stopping anyone from manufacturing freely poured syrup that turns the seltzer into flavored soda.

Kraft could have very well come out with Crystal Light and Country Time concentrated syrup bottles without any financial or branding ties to SodaStream. Obviously, SodaStream would still have benefited from the move. It would still be selling the carbonator refills, and the product would validate the initial purchase of the system. Why did Kraft have to play nice? It obviously sells its Mio water flavors without tethering itself to any single bottled water company.

Well, it could be that Kraft realizes that this is pretty much the only game in town. Primo Water's (Nasdaq: PRMW  ) flavorstation had a shot, but the water specialist warned in November that it would only ring up $1 million to $2 million in flavorstation sales during the holiday selling season.

Kraft did this the right way, and it opens the door for others to follow suit. Obviously, we'll never see the cola giants undercutting their bottlers this way. Energy drink makers make more sense. SodaStream already has its own energy drink syrup. However, I can't see Red Bull or Hansen's (Nasdaq: HANS  ) Monster putting out a product that undercuts its own high-priced canned offerings.

Then again, what if SodaStream pulls a page out of the Green Mountain playbook? What if it turns to both Red Bull and Monster and says that it will only officially back one super-premium energy drink company? The first one to agree to a co-branding deal would lock up exclusivity -- at least when it comes to co-branding for energy beverages. Would one of the two biggies here blink?

SodaStream is more powerful than we thought it was. Who knows what it will do for an encore?

As part of the CAPScall initiative for accountability, I went ahead and started a bullish call for SodaStream on Motley Fool CAPS last year. Feel free to play along.

Motley Fool's top stock for 2012 isn't SodaStream. If you want to find out what it is, a special report reveals all. It's entirely free, but will only be available for a limited time so check it out now.

Motley Fool newsletter services have recommended buying shares of SodaStream International, Hansen Natural, and Green Mountain Coffee Roasters; and creating a lurking gator position in Green Mountain Coffee Roasters. 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. The Motley Fool has a disclosure policy.

Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story, except for Green Mountain. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

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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 February 11, 2013, at 8:04 AM, JeanDavid wrote:

    Before investing in Sodastream, you might wish to consider the following article:

    "Like Begin's Prawer Plan, "Negev 2015" also presents itself as simply an egalitarian enterprise, promising improved infrastructure in the dilapidated Bedouin townships with more opportunities for businesses and employment for everyone. Meanwhile, the plan dedicates 1.2 billion NIS to Jewish settlements while overseeing the wanton destruction of so-called unrecognised Bedouin communities that have made their home in the Negev for hundreds of years - without the assistance of massive government subsidies.

    So far, the only proposal Daroma and Begin have come up with to relieve unemployment and poverty among the deliberately destabilised population of Bedouins in the Negev is through joint "Jewish-Bedouin" industrial zones. Modelled on the industrial zones, Israel has established inside settlements in the Occupied West Bank, businesses receive ample incentives to establish factories in these zones where exploitation of workers is rampant.

    Factories on occupied land

    Take, for instance, SodaStream, the company that has marketed itself as providing a solution to the extravagant waste produced by bottled water and sodas, while it seeks to downplay its rivalling reputation as a profiteer of Israel's occupation of Palestine. SodaStream, a prominent target of the BDS campaign, has placed its main factory in illegal settlement Ma'ale Adumim's industrial park, Mishor Edomim.

    Why did SodaStream establish its flagship factory inside an illegal settlement? According to Peter Wiseburgh, the founder of the company, the decision was not political, but economic. "It was a good deal. Not a political act."

    To be sure, the Government of Israel lures businesses to set up shop in settlements by offering low rent, tax incentives and a lenient enforcement of environmental and labour protection laws, while presenting these endeavours to the outside world as providing the local population with a "hub for co-existence and a bridge for peace", in the words of Knesset Speaker Ruby Rivlin.

    In reality, industrial zones like Mishor Edomim are more accurately described as exploitation zones, where the most vulnerable workers trade their labour for a little cash. Kav LaOved, an Israeli workers' rights organisation, has consistently reported that SodaStream pays Palestinian workers substandard wages, subjects them to poor working conditions and fires them at any sign of protest.

    Yes, establishing a factory on occupied land provides capitalists very "good deals", indeed.

    It's no wonder then that SodaStream accepted a 25 million NIS grant from Israel's Investment Promotion Centre to build its next plant within Israel's Green Line, in the Idan Industrial Zone of the Negev, which will function in much the same way as settlement industrial parks like Mishor Edomim. According to the director of the IPC, SodaStream chose the industrial zone in the Negev - over many other options - because of the alluring tax cuts the State of Israel offered it. Doubtless, the promise of reduced "bureaucracy" (read: worker and environmental protections) makes the deal that much sweeter.

    As Israel throws billions of dollars into making the Negev a place where "people want to live", there are tens of thousands of people who live there now and would prefer to remain - without the interference of state-driven, predatory capitalism armed with bulldozers and demolition orders."

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