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Is Green Mountain Coffee Roasters' Coke Deal Good News for SodaStream?

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One of SodaStream's (NASDAQ: SODA  ) stated goals is "to make SodaStream mainstream." The idea of having a soda maker on the countertop needs to be commonplace if you want to get good market penetration. Up to this point, SodaStream has been fighting a lonely battle, with most other carbonators being SodaStream knockoffs. No other company is putting big money into marketing or shelf space, so any advance in the market has to come from SodaStream's hard work.

Today, things got shaken up. Coke (NYSE: KO  ) announced that it bought 10% ownership of Green Mountain Coffee Roasters (NASDAQ: GMCR  ) . The companies are planning a partnership for "the production and sale of The Coca-Cola Company-branded single-serve, pod-based cold beverages." That push is going to help give table-top carbonators a push during the next 10 years, and some of that is going to come SodaStream's way.

Putting the fizz back into SodaStream's biz
Last week, I looked at SodaStream and came to the conclusion that the company had stalled out. This changes everything. Now, SodaStream is the established brand in a growing market. While the Coke brand is going to Green Mountain, SodaStream can still capitalize by being the other brand, or by joining forces with Pepsi, or another big name.

There's a temptation to say that this is bad news for SodaStream, because Coke is a big name and people will want to buy the Coke-branded product. History tells a slightly different story. And you don't have to look any further than Green Mountain to find a counter example.

The value of being the first mover
A few years back, Starbucks (NASDAQ: SBUX  ) announced that it was going to get in on the single-serve coffee business with its Verismo machine. Analysts thought that Green Mountain would come out as the loser in that battle, because Starbucks had such a strong brand name. That hasn't been the case.

The Verismo has sold, but it hasn't put a dent in Green Mountain's sales, and Starbucks' management team continues to use terms like "very optimistic" and "growing opportunity" when referring to the machine. Those are terms used by people stuck in second place.

What Starbucks has done is to help to make the idea of brewing single servings at home more mainstream. That means that when shoppers are in Target and see a Green Mountain Kuerig machine, they think, "Oh yeah, just like the Starbucks one, but cheaper." That can only be good news for Green Mountain.

One concern
This looks like great news for almost everyone involved due to the glow that's going to be cast on SodaStream from the Green Mountain-Coke agreement. The only way this can go badly for SodaStream is if Pepsi decides that it also wants a Green Mountain pact. In that instance, I think the overwhelming brand strength on Green Mountain's side starts to make SodaStream look like store-brand cola. That seems like a long shot, though, and it's more likely that Pepsi would go it alone, or try to build with a rival like SodaStream. More good news.

For now, things are looking rosy for all the players, and this move gives SodaStream exactly what it needed -- a way out of a rut.

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Read/Post Comments (3) | Recommend This Article (0)

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 February 06, 2014, at 7:19 PM, longdoc wrote:

    Did you miss the point of GMCR and Coke having an exclusive deal?

  • Report this Comment On February 06, 2014, at 8:43 PM, XMFRedRam wrote:

    Thanks for reading. While it's possible that this goes both ways, the PR note phrases it so that the exclusivity refers to Coke's ability to sign up other partners, not Green Mountain's.

    "GMCR will be The Coca-Cola Company's exclusive partner for the production and sale of The Coca-Cola Company-branded single-serve, pod-based cold beverages."

    It seems to leave open the opportunity for GMCR to sign something with Pepsi. I assume that was the point you were making, but I could have misread your comment.



  • Report this Comment On February 07, 2014, at 9:16 AM, anindakumars wrote:

    i think irrespective of coke or pepsi's interest , SODA's product line is here to stay and grow. Of course an interest from PEP would make the stock surge, but that would spoil the eco-friendly image SODA has built around it.

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Andrew Marder

Andrew Marder worked in retail for years, holding jobs ranging from bookseller to bank strategy analyst. He has worked for the Motley Fool since 2012, and loves coffee.

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9/3/2015 3:59 PM
GMCR $57.43 Up +0.87 +1.54%
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