Can Green Mountain Coffee Roasters Take Down SodaStream?

On July 15, Green Mountain Coffee Roasters (NASDAQ: GMCR  ) filed to trademark "Karbon," which is a "machine for the production of cold water, soda, still, carbonated and sparkling beverages."

Investors immediately began to speculate that Green Mountain Coffee will be entering the single-serve cold beverage market space to compete with the likes of SodaStream International (NASDAQ: SODA  )

Can Green Mountain make a working product?
In order for customers to buy a Keurig Cold device, the company will have to model a machine off the success of its current Keurig machines in terms of timing, quality, and (more importantly) partners.

Green Mountain Coffee has licensing agreements with many well-known coffee makers to give its customers a wide variety of choices. While Green Mountain makes fantastic coffee, some consumers demand a "higher end" coffee experience to compliment the Keurig machine.

Green Mountain Coffee would likely consider Starbucks to be its most important "higher end" partner. Starbucks sells Keurig-licensed K-Cups, and has sold over one billion units since it entered the channel in 2012. According to management, K-Cup growth during the quarter was 42%!

Starbucks is to coffee as blank is to soft drinks
Starbucks is no doubt the king of coffee. But which company is the equivalent in cold carbonated beverages? More importantly, can Green Mountain Coffee land a similar partnership for Keurig Cold?

To answer the second question first, the answer is a "yes" based on comments stemming from a recent industry conference. This company, by the way, is The Coca-Cola Company (NYSE: KO  )

During Beverage Digest's New York Conference, Coca-Cola's CEO Muhtar Kent said that single-serve dispensers are an "opportunity" rather than a "threat" to the industry. In addition, Kent noted that further innovation would determine the level of success for these single-serve dispensing systems.

If Green Mountain Coffee can deliver on its product and prove that it can replicate the current Keurig's success with cold beverages, a partnership with Coca-Cola is likely.

Would Coca-Cola really be interested?
The short answer at this point is a "yes."

Brian Kelley, Green Mountain Coffee's current CEO, worked five years at Coca-Cola, so there is little doubt that he knows what Coca-Cola wants to see in a product, and knows how to deliver it. 

Coca-Cola has been toying with the idea for several years through its "Freestyle" machine. The Freestyle machine is a touch screen machine that dispenses Coca-Cola drink products. Users select from mixtures of flavors of Coca-Cola branded products which are then individually dispensed. The machines use concentrated ingredients in the same way a Keurig Cold machine could work. The machines are available at Coca-Cola partnered restaurants such as Wendy's and Burger King.

"We've proven prelaunch and in-market that when a restaurant has Coca-Cola Freestyle, their traffic, incidence, and beverage servings grow anywhere from single to double digits," according to Coca-Cola's VP and general manager Jennifer Mann.

The success of Coca-Cola's Freestyle machine could hint that the company is open to partnering with Green Mountain to bring a similar device to the home market.

Fizzing out the competition
SodaStream already has a product on the market that makes cold carbonated beverages. It's devices are straightforward, easy to use, and most importantly work just fine in getting the job done.

Green Mountain Coffee must see that either the market is big enough for two players, or that it can come in and steal market share away.

SodaStream can be found at retailers like Target, Wal-Mart, and Bed Bath & Beyond. Green Mountain Coffee K-Cups are readily available at all channels, including grocery stores and convenience stores where SodaStream has no presence. Green Mountain Coffee has better distribution reach without any doubt.

SodaStream is also having trouble selling its current units and is heavily relying on promotional activity. For example, a "Mega Pack" starter kit bundle was being sold at Wal-Mart for $79 that included a $25 Wal-Mart gift card and a half dozen various flavors and accessories. The bundle also came packaged with two spare bottles and various other goodies.

SodaStream's recent promotional activities indicates a growing concern among investors that its devices are losing momentum. Green Mountain Coffee entering the space could spell trouble for SodaStream.

According to Fool analyst Jason Moser, all SodaStream has to do is have a very successful holiday season.  "If they can pull off a good holiday season, today's stock price will represent a very good opportunity."

SodaStream was recently downgraded by an analyst at Longbow from "Buy" to "Neutral" based on the research firms in-depth study of the company's performance during the recent shopping season.

The analyst noted that "Q4 results will trend toward the low end/below Street expectations. Promotions drove December survey results higher at Walmart and Bed Bath and Beyond, but light promotions at Costco and other retailers caused demand to suffer."

A carbonated conclusion
SodaStream had its 15 minutes of fame, but its time may be coming to an end. Declining demand and increased spending in marketing (including a Super Bowl commercial) could indicate that consumers are ready for something new. Consumers want something that can deliver a superior product through superior partnerships.

If Green Mountain Coffee develops a device that is truly free of a CO2 machine, it could indicate game over for SodaStream. Many Foolish readers are no doubt tired of paying around $20 every few months to refill the CO2 bottle!

Green Mountain Coffee is set to release its Keurig 2.0 device in 2014, so any Keurig Cold device is unlikely to be released in the near term.  As such, an investment on a successful Keurig Cold machine is a longer-term play.

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Read/Post Comments (8) | Recommend This Article (1)

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 December 21, 2013, at 11:53 AM, figglebird wrote:

    There are some falsehoods published here. For starters, you might want to fact check Sodastream's grocery U.S distribution partners.

    Also I would suggest you look into the history of the at home carbonation market... Look for instances where companies tried to enter... Look at the main reason why entry was unsucsessful.

    Also Soda Stream is not having problems selling their inventory. It's already been sold to the retailers that resale it... In which case you might want to check up on NPD data. If you're assuming that prepackaged bundles and rebates are a sign of weak sell thru, you might want to really look at those NPD numbers that even Barclays underprojected then research Soda's business model - particularly with respect to customer retention and conversion toward consumable reliance.

    Then you might want to ask yourself... How in the world is GMCR going to ever release a machine much less overcome their carbonation problem...

    Well just like Breville(who is partnering with Soda), they're probably not.

  • Report this Comment On December 21, 2013, at 10:49 PM, morgamax wrote:

    The quality of this article is below what I have come to expect from The author has a storyline and cherry picks anecdotes to fit that storyline. This article is a story, not analysis.

  • Report this Comment On December 22, 2013, at 7:48 AM, martinitony wrote:

    Me too. I'm going into the home carbonation business and developing a machine similar to the GMCR prototype. I am calling it Tony's Folly. Mine will work on pure magic, just like GMCR's. I will show you exactly how it works just before we go into production. My friends are lining up to put a billion dollars in to get me started. They like the sound of the idea.

  • Report this Comment On December 22, 2013, at 7:10 PM, Risky88 wrote:

    Sodastream is one of the cheapest growth stocks out there.

    GMCR may very well enter into the market


    Why in the world are you comparing KO?

    MF has said a million times that getting into this business doesn't make sense at all due to their bottling contracts. If they Sodastream would be the player to buy not a company with no sales at all in the market.

  • Report this Comment On December 22, 2013, at 8:43 PM, profitalert wrote:

    Jason, what facts are you basing your opinion that SODA is having difficulty selling their machines? NPD data shows the machines are well over 50% growth for the latest numbers. Most of the retailers have chosen to have Holiday specials to drive traffic. GMCR will have difficulty turning an acceptable profit for less than $100 a machine. Rumours are the technology that GMCR is trying is producing terrible carbonation results. If they try plan B, their carbonation will be better but the machine will be much more expensive due to the complicated parts required and it won't be able to carbonate as well as SODA

  • Report this Comment On December 22, 2013, at 11:37 PM, whitesirens wrote:

    So, anyone that has a superbowl commercial spot is in trouble? Is that what you're suggesting? I guess Coca Cola and Pepsi are really in deep trouble then?

    This author is a joker.

  • Report this Comment On December 23, 2013, at 7:29 AM, sworks4 wrote:

    Jayson hope for your sake you don't write this stuff for a living

  • Report this Comment On December 24, 2013, at 3:55 AM, brybat wrote:

    "SodaStream is also having trouble selling its current units and is heavily relying on promotional activity. For example, a "Mega Pack" starter kit bundle was being sold at Wal-Mart for $79 that included a $25 Wal-Mart gift card and a half dozen various flavors and accessories. The bundle also came packaged with two spare bottles and various other goodies."

    Why didn't you mention that your price was a "BLACK THURSDAY" special that we had to get in line for and was only available for one hour. I was there and they sold out. You make it sound like Walmart was desperate to unload Sodastream. That is not true.

    You need to work harder if you want to fool us Fools!

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