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SodaStream (Nasdaq: SODA ) was probably never worried about the competitive threat posed by Primo Water's (Nasdaq: PRMW ) Flavorstation, but there's less of a reason to worry about the fledgling soda maker now.
Primo Water is all but giving up on the device some SodaStream skeptics figured would challenge SodaStream's platform for home-brewed-pop superiority.
Conceding that "the Flavorstation business is progressing at a slower rate than we expected," Primo Water is repositioning itself to focus on its flagship water and dispenser businesses. The company's writing down its investment in the acquisition that birthed Flavorstation.
Primo Water will pursue strategic alternatives for the appliance that turns still water into seltzer, but the chances of the company finding a buyer for the assets -- much less striking licensing partnerships -- aren't very good. If Flavorstation cranked out negative gross margins in its latest quarter and still didn't manage to make a dent in the market that SodaStream has seemingly cornered, it's not going to work for somebody else.
Primo Water saw its stock take a 21% hit yesterday after posting disappointing quarterly results.
Primo Water had a chance. It already sells its multigallon jugs of water through several grocery store chains, and SodaStream doesn't plan to test distribution through supermarkets and drugstores until next year, eyeing a full rollout by 2014. If Primo Water could've talked enough of its water-lugging retailers into carrying Flavorstation, the company could've exposed a new audience to the merits of home-based soda creation ahead of SodaStream.
It never happened. Outside of Lowe's (NYSE: LOW ) -- and a handful of small independent supermarket and hardware stores -- Flavorstation wasn't getting any kind of retail visibility. If a home improvement superstore chain is your only well-known distributor, you just know that you're not going to get the repeat business that these ecosystems require in terms of carbonator and soda flavor refills.
Primo Water's retreat comes just as SodaStream delivered another blowout quarter yesterday. Revenue and adjusted earnings soared 49% and 41%, respectively, in the period. The market's there for a SodaStream rival, but Flavorstation's skull on a spike will likely scare potential entrants away.
Well played, SodaStream.
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