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Disruptors always have to be on the lookout.
They don't want to be disrupted themselves.
Shares of Green Mountain Coffee Roasters (Nasdaq: GMCR ) and SodaStream (Nasdaq: SODA ) fell 3% and 4% respectively yesterday on fears that Wal-Mart (NYSE: WMT ) would soon begin selling a beverage system that makes hot and cold drinks.
Research firm Detwiler Fenton reports that the world's largest retailer will soon begin offering the Esio Beverage System.
The appliance makes coffee, tea, sport drinks, and other warm and cold drinks. The news may have sent shivers down the spine of Green Mountain and SodaStream investors at first, but they were probably relieved after doing a little due diligence on Esio itself.
Pour it on
The Esio Beverage System isn't new. It's been around for a couple of years. It's essentially a water cooler with a flavor dispenser. There are 13 different flavor pouches available -- from coffee to lemonade to vitamin water -- that are automatically poured into the hot or cold water based on a user's strength setting.
Right off the bat, you have to question why SodaStream took a hit on this news. When Primo Water's (Nasdaq: PRMW ) flavorstation was introduced last year, investors had legitimate reasons to fear if a pop contender had arrived. It wasn't until Primo's delayed flavorstation launch, weak initial distribution, and the parent company's own near-term cash crunch that SodaStream investors knew that they had nothing to worry about.
Esio doesn't make carbonated beverages. The "energy drink" claim doesn't refer to a carbonated percolator proxy for Red Bull or Monster. It's really just a sports drink along the lines of Gatorade. Esio may have a neat patented way to make sure that its pouches don't cross-contaminate one another by not interacting with the system, but it's really the equivalent of flavoring hot or cold water.
There's no fizz here, folks. How does this hurt SodaStream?
Java the huh
Green Mountain and its single-cup rivals may have a little more to fear schematically, but I find it hard to believe that a water cooler dispensing hot water and a few droplets of concentrated coffee liquid will come close to the brewed experience that consumers expect out of coffee.
Then we get to price. We're not talking about slick countertop appliances -- at least not yet. The Esio machines on the market right now are $600 floor-standing systems that use either three- and five-gallon water jugs or are connected to an existing waterline. That's certainly a big investment for a beverage system. Green Mountain's Keurig and SodaStream appliances can be had for as little as less than $100.
The Esio website does feature a smaller unit that appears to be a countertop appliance, but a "model coming soon" teaser is the only information available. It certainly would make sense if that is the system that will work its way into Wal-Mart, but even then it doesn't seem as if it's anything for Green Mountain shareholders to fear.
Keep in mind that Keurig has vanquished Tassimo and Senseo, and those are legitimate single-cup brewing systems backed by major food giants. Is Keurig's biggest threat really going to be a small Sarasota company?
The benefit of the doubt
Esio is small, and there's nothing wrong with that. Green Mountain acquired Keurig when it was just getting started. SodaStream didn't make a stateside push until two years ago. The $600 behemoths on the market are obviously a nonstarter in a mainstream push, but the smaller unit "coming soon" does look awfully slick -- if it works.
However, Esio isn't ready for primetime. Its official YouTube channel has less than 5,000 total views and a mere four subscribers.
There's an Esio recipe book on its website. The very first recipe is for hot chocolate. Ready? Here goes.
"Pour 1 pack of your favorite instant Hot Chocolate into coffee mug and pour hot water into cup from Esio."
I'm not making that up. The next recipe is for oatmeal. Guess.
"Pour 1 pack of your favorite instant oatmeal into a bowl and pour hot water into bowl from Esio Beverage."
The recipes do get more fanciful after that, but the point is that this doesn't seem like the kind of company that's going to be able to fulfill a national rollout into the world's largest retailer.
Green Mountain shareholders should still keep an eye on developments here, just as SodaStream investors can't completely ignore flavorstation. However, yesterday's knee-jerk reaction to dump both niche leaders is wrong.
Here's a better recipe:
"Pour 1 pack of your favorite negative sentiment into a rumor mill. Discard."
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