Is SodaStream Fizzling Out?

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I've written in the past about SodaStream (Nasdaq: SODA  ) and it's been a bullish CAPScall of mine: The company's growth potential is enormous, it's product is profitable, and its valuation seems reasonable.

However, I have my doubts. And no, it has little to do with the past quarter which -- I agree with fellow Fool Rick Munarriz -- was fairly positive. 

My doubts are with the product itself. I've had my unit for about a year now, and I've stopped using it. 

I stopped using my SodaStream machine because its vaunted convenience never materialized. When I bought the thought of "Soda On Demand" captivated me. But the reality has been less stellar. 

For one, you still have to wait for the water to chill after carbonating it and putting the syrup in. I don't like tap-water-temperature soda, so waiting for it to cool is a pain. 

Second, you have to fill up the bottles with water. Yeah, I know that sounds lazy, but it can take quite a while to fill when you're using a water filter. Also if your sink is as shallow as mine you have to hold the bottle at a bizarre angle to fill it.

So "Soda On Demand" has not exactly been the reality. 

A Better Opportunity In Monster
Another factor that has changed my mind is finding out more about Monster Beverage (Nasdaq: MNST  ) . I now think that they are the better bet for your thirst-growth dollar, and they're also a CAPScall.

The Monster brand has become a powerful force and that has vanquished stiff opposition from Coca-Cola (NYSE: KO  ) and Pepsi (NYSE: PEP  ) . That says something about their moat. Buffett's formula of "buy commodities, sell brands" seems to be working for them. The company's ROIC was a staggering 31% -- twice that of Coke and Pepsi --  last year despite increased promotional allowances (which should pay dividends down the road) and tons of competitive entrants. By contrast, SodaStream has yet to build a brand around their flavors. The bottles of syrup (such as "Cola," "Cream Soda," and "Grape") are as generic as they come. 

The other thing that Monster has going for them that SodaStream doesn't is that the product has a performance- and mood-enhancing benefit. (Ask any coffee drinker if mainlining large doses of caffeine is an easy habit to break.) SodaSteam's diet energy drink is actually one of the most delicious flavors they have, but I have yet to see them really promote the energy-drink angle, despite the obvious cost savings their product provides. 

Are You Still Using Your Machine?
For now I'll keep my CAPScall, but I have a question for the reader: Are you still using your SodaStream machine? Do you still find it more convenient than store-bought soda, or is there another reason you still use it (or don't)? Let me know -- my CAPScall is counting on you!

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Fool contributor Chris Baines is a value investor. Follow him on Twitter, where he goes by @askchrisbainesChris' stock picks and pans have outperformed 90% of players on CAPS. He owns no shares of the companies mentioned.

The Motley Fool owns shares of PepsiCo and Coca-Cola. Motley Fool newsletter services have recommended buying shares of SodaStream International, PepsiCo, Coca-Cola, and Monster Beverage; and creating a diagonal call position in PepsiCo. 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.

Read/Post Comments (11) | Recommend This Article (5)

Comments from our Foolish Readers

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 March 05, 2012, at 6:52 PM, fvgetcom wrote:

    I never bought the Soda Stream machine because it never sounded easy to begin with. It sounded like as much work as cooking, and I dislike cooking. How could it be easier to buy (and store) a machine, carbonation and flavors than to simply pick up one package and walk out of the grocery store? And, that's not even considering the time involved in making the stuff........Then, there's the consideration that soda now has a "bad boy" reputation, quite deservedly. Reminds me of a friend I once had who bought cigarettes one pack at a time (rather than saving money by getting cartons.) Why? Because, in his mind, each pack was always his last one. For years. But, he did seriously think about quitting cigarettes every single day of his life. That sort of thinking is going on right now with soda drinkers. Why would they want to stock up on soda-making supplies when each can or 12-pack is going to be their last?

  • Report this Comment On March 05, 2012, at 7:05 PM, ajschloss wrote:

    I don’t get your comments. I have cold filtered water in the refrigerator already because I do not like to drink tap water. I do not own the stock, but I have this machine for years already and I love it. We no longer have to carry 2L bottles and no more items to dispose. If pushing a button three times is too difficult, then I guess this idea will never fly.

  • Report this Comment On March 05, 2012, at 7:30 PM, seattle1115 wrote:

    My wife wanted one of these, so I got her one. It never sounded the least bit useful to me, and everything associated with the product is WAY too expensive, in my opinion - but my wife seems to like it. Personally, I don't get it.

  • Report this Comment On March 05, 2012, at 8:41 PM, tstein1020 wrote:

    Same situation as ajschloss. I fill my bottles from my refrigerator. Thus, the water is always cold, filtered, and easy. Also, like to add a splash of juice to make my own flavors. Much better then traditional bottled beverages, and probably healthier.

  • Report this Comment On March 05, 2012, at 8:42 PM, rvana wrote:

    We've been using one for three years now and are total converts. If you don't have a fridge with cold water spigot as the previous writer has, just get two or three extra bottles. When you finish one, fill it with water and let it chill overnight. Carbonate the next morning or last thing before you turn in at night.

    A case of Pelligrino at Costco ran to about $1.25 a bottle and we could go through four or five bottles a day. Even with the fixed cost of the machine itself factored in at no salvage value, we're drinking high quality fizzy water for around $0.25 a bottle.

    We aren't soda drinkers, though the flavors we've tried are very good. Just for an inexpensive alternative to sparkling water it is well worth it. We've also had four friends pick them up after having us serve it at dinner!

  • Report this Comment On March 06, 2012, at 12:07 AM, rabbitman12 wrote:

    I did not buy one, however I agree that it takes a long time to fizz it up. I do want to mention that their CO2 cartridges must ship as "HAZ-MAT" material and the cost of shipping those filled canisters is very high relative to their price. No solution to fix that. I estimate that their US sales is approx 40 million and see that retailers may realize that this not a critical mass product like Kurig and move on to the next big thing. Remember bread bakers, pasta makers, and juicers? All hit the wall.

  • Report this Comment On March 06, 2012, at 2:07 AM, seattle1115 wrote:

    rabbitman12: "Remember bread bakers, pasta makers, and juicers?"

    My dad worked retail for a number of years, and he often chuckled about what he called "closet appliances." It seemed there was one every Christmas season that dominated the market for the season, then faded away.

  • Report this Comment On March 06, 2012, at 8:59 AM, jbwheels69 wrote:

    I imagine the writer doesn't lift the lid when he pee's as it's too much work either. ;)

    That said, a convenience factor for us is that my wife loooooves fountain drinks. Plastic bottle or can doesn't cut it. I'm even getting this way. Fountain just tastes better.

    She drinks soda in the morning like most folks drink coffee to start the day. So my options are one, hop in the car (gas burn) and drive to McD, 7-11 or some other location and pick up a fountain drink. Or mix our own at home. This is a win-win w/ out even factoring in the rising cost of gas. Go Sodastream :)

  • Report this Comment On March 06, 2012, at 3:31 PM, Zenfuego wrote:

    Not sure what you are talking about with the water cooling. Like the guy above, I have a refrigerator with a water tap, I fill the bottle there, go over to the Sodastream, and make my sparkling water. Boom, done. Drinkable immediately. I used to spend $10- $15 a week at Trader Joe's buying flavored sparkling water- I have a stomach condition that sparkling water relieves- and now I make it at home for MUCH less, and I maybe spend $15 a month. The $15 exchange for the canisters at Bed Bath and Beyond is awesome, and the syrups are cheap at 9.99 for 3 bottles that last a month. Making my own tonic for G+T's is also great. And the kids dig the soda, that goes without saying, which is also cheap. I bought more stock when the lady at Bed Bath and Beyond said they couldn't keep them in stock over the Holiday, and that the only problem they had with them was that they couldn't keep up with demand for the syrups as it is so robust. Game over- Sodastream is a winner, and just at the bottom of its growth curve- I've also seen my first TV ads over the last two months, and that can't hurt the growth curve.

  • Report this Comment On March 06, 2012, at 3:57 PM, bshacter wrote:

    i have users seveal soda makers over the years they are unreliable and use many of the small cartridges.

    Soda steam is fabulous. i use my fridges cold water or my 5 gallon dispenser of spring water. i have found several diet flavorings that are pretty good but mainly we like the seltzer plain. the large gas cartridge is great. At the right price i will by the stock.

  • Report this Comment On March 07, 2012, at 7:28 PM, urdine wrote:

    I've got to say I've had my SodaStream for a year and a half now and still love it. I use some of the SodaStream flavors, but I really love making soda with some of the more exotic flavors from Torani. It's awesome to make old fashioned fountain sodas like blueberry and lemon soda. Expanding their line into new flavors is going to be a real boon to them because suddenly they can provide flavors that people just can't get otherwise. That's a big selling point, especially for kids!

    What I do is just make the soda with regular temperature water then fill a cup with ice since I have an ice maker. Simple and effective. If SodaStream wants to really take their model upstream they should make a combo water filter/soda dispenser unit that you have to install under your sink. If they can get a bit closer to critical mass suddenly that won't be such a crazy concept.

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