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Should You Buy the Dip in SodaStream?

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Since reaching new highs for the year in June, SodaStream (NASDAQ: SODA  ) has fallen by more than 28% over the last few months. The possibility of Starbucks (NASDAQ: SBUX  ) and Green Mountain Coffee Roasters (UNKNOWN: GMCR.DL  ) entering the carbonated-drinks market has been a reason for concern among investors and probably one of the main factors behind the decline.

It's always important to monitor competitive risks, especially when they come from bigger, successful companies like Starbucks and Green Mountain. However, the market seems to be exaggerating the relevancy of these risks, so the recent dip in SodaStream may easily turn out to be a convenient buying opportunity for investors.

Starbucks and Green Mountain want to gain effervescence
Starbucks has recently filed a trademark application for a carbonated drinks maker called Fizzio. The coffee giant has been testing carbonated beverages in select locations around the world and management has received encouraging feedback from customers.

Considering how innovative and effective Starbucks has proven to be in its growth initiatives over the years, investors have good reason to closely monitor the company and its new ventures. However, Starbucks seems to be aiming at its own coffeehouses as opposed to the home soda market.

According to Bloomberg BusinessWeek, Starbucks spokesman Zuck Huston was quite clear about this. Says BusinessWeek:

"There are no plans to sell at-home." The customer response to the chain's soda test has been positive so far, and the trademark only "pertains to the in-store test," according to Hutson. "We take steps to protect our IP. This is a normal course of doing business."

Back in July, Green Mountain filled a trademark application for a soda maker machine called Karbon. Coming from Green Mountain, chances are this product is targeted to the home soda market, so investors in SodaStream may want to keep an eye on this possible competitive threat.

On the other hand, a trademark application doesn´t provide much information about the competitive dynamics in the industry. It's far too early to tell if Green Mountain will really enter the home soda industry; the timing of a possible entrance and product characteristics are even much more uncertain.

Monitoring possible competitive threats is always a smart idea, but that doesn´t mean that trademark fillings from Starbucks and Green Mountain are a valid reason to sell SodaStream. There is an enormous difference between a trademark filling and bringing a competitive product to the market in the middle term. 

Competitive strengths
Success generally attracts competition, so it wouldn't be strange to see different companies paying more attention to the home soda market in the coming years, but SodaStream has the first-mover advantage and is building a valuable name in the industry.

With sales increasing at 38.4% annually over the last five years, SodaStream is proving to be much more than a fad, and both consumers and business partners have taken notice.

SodaStream is consolidating alliances with several partners and strengthening its competitive position. The company's global retail partners include names like Wal-Mart, Amazon, and Costco, among many others. At the same time, SodaStream is partnering with companies like Samsung and Whirlpool to expand its presence in refrigerators and other home appliances.

The company's flavors include offerings from players like Kraft Foods, Campbell Soup, and, more recently, Fresh del Monte among several others. This kind of variety and flexibility when it comes to flavors wouldn't be easy for the competition to replicate.

SodaStream is gaining acceptance among customers and business partners. This creates a positive cycle of expanding its distribution network and growing brand recognition, and SodaStream continues growing its sales while gaining competitive strength.

Besides, there is no reason to believe the home soda industry is going to be a zero-sum game in which the winner takes all. Just like Starbucks' Verisimo didn't kill Green Mountain's Keruig in the home coffee-brewing business, increased competition may actually generate growing attention from consumers and end up benefiting SodaStream by promoting industry demand.

Bottom line
It's still far too early to tell if Starbucks or Green Mountain will represent a serious competitive threat for SodaStream, so the recent sell-off seems like a classical case of market overreaction. Even if competition does increase in the coming years, SodaStream is already building a sound competitive position to defend itself. The recent dip in SodaStream is looking like a buying opportunity for long-term investors.

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Related Tickers

9/26/2016 4:00 PM
SODA $26.65 Down -0.64 -2.35%
SodaStream CAPS Rating: **
GMCR.DL $0.00 Down +0.00 +0.00%
Keurig Green Mount… CAPS Rating: **
SBUX $54.04 Down -0.39 -0.72%
Starbucks CAPS Rating: ****