3 Reasons SodaStream Could Benefit From the Green Mountain/Coke Deal

The beverage industry was rocked last week by a surprise announcement between Green Mountain Coffee Roasters (NASDAQ: GMCR  ) and Coca-Cola (NYSE: KO  ) .

Coke said it would be taking a 10% stake in the Keurig maker, and lending its brand portfolio and marketing power to the new Keurig Cold home drink machine due out next year. The development not only shakes up the at-home soda-making industry, but makes home-brewing the next front in the cola wars, and may lead to other beverage makers, such as PepsiCo and Dr Pepper Snapple, signing similar deals.

Not surprisingly, Green Mountain shares shot up on the news, gaining nearly 40% since the announcement, but investors were left scratching their heads about SodaStream International (NASDAQ: SODA  ) , the leading at-home soda maker. Shares of SodaStream initially dipped 7% after-hours on the news, but then rebounded the next day, finishing up 6% on speculation that Pepsi could make an offer to buy out the countertop upstart as was rumored last summer. While a Pepsi buyout or partnership would definitely be a boon for SodaStream, there are other reasons to favor it after last week's announcement.

1. Coke will grow the market
Coke is the most recognized brand on earth, with distribution from Topeka to Timbuktu. The simple fact that Coke is getting behind the Keurig Cold is a huge validation for DIY soda-making and SodaStream, and the company released a statement saying as much about Coke's decision: "(It) serves as further validation of the relevance of our unique business model and the enormity of the global opportunity that lies ahead of us." Coke's move not only makes it more likely that Pepsi or a similar brand will align with SodaStream, but it will also attract further attention to the countertop soda-making industry. This is free advertising for SodaStream, and it's coming at a time when the company has no legitimate competitors, which brings me to my next point.

2. SodaStream has a head start
Green Mountain is announcing this deal with more than a year to go until the Keurig Cold hit shelves, as it won't be available until 2015. There's still another holiday season remaining before its release, and 46% of respondents to a survey said they would enjoy receiving a SodaStream as a gift. One year is a lot of lead time for consumers who are waiting for a new product. If a prospective Keurig Cold buyer is curious about the new DIY soda phenomenon, they're likely to get their hands on a SodaStream to test it out. Additionally, by being a first mover, SodaStream has skimmed the market for countertop soda machine buyers. It's already nabbed the early adopters, meaning Coke and Green Mountain are going to have to work that much harder to find new customers.

3. SodaStream will be cheaper
Coke is a premium product. It sells based on its brand name and the loyalty it's developed with its customers over generations, not by competing on price. Coke isn't dumb enough to cannibalize sales in the supermarket aisle by making its new pods cheaper than the regular bottles and cans, which means those pods aren't going to be cheap. Research firm Stifel Nicolaus estimates the cost of a Keurig-made Coke could be two to three times more than in the supermarket. SodaStream, meanwhile, says its flavored sodas cost $0.25 per 12 oz. And not only will the per-drink cost of a Keurig-made Coke be pricier than a SodaStream beverage, but the base machine is also likely to be more expensive. SodaStream starter kits start at $80, while Keurig's hot-beverage machines range much higher than that, with some priced close to $200. SodaStream's countertop machine also features a detachable CO2 bottle as opposed to the Keurig Cold, whose pods have CO2 built in, a more technical design that should be more expensive. For cost-conscious consumers, then, SodaStream seems like the better bet for at-home soda-making.

Foolish bottom line
A lot can happen in a year while the market waits for the Keurig Cold to come out. SodaStream could form a partnership with Pepsi or another beverage maker. We could see top-line growth expand as excitement builds about DIY soda-making, or we may see it roll out a new product as it did recently with the SodaStream caps, which are similar to the K-Cups. Regardless of what the future holds for SodaStream, it seems foolish to bet against a company that's grown its top line nearly 30% for the past several quarters simply because of Coke's entrance into the market. If Coke's hopes for a soda fountain in every home do take off, SodaStream stands to be among the big winners.

What's the next stock poised to pop?
Green Mountain and SodaStream were once huge growth stars, but both have faded from their once-rocket-like rises. What stock is going to be a big winner this year? Well, The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.


Read/Post Comments (0) | 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.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2833644, ~/Articles/ArticleHandler.aspx, 10/2/2014 10:49:28 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement