SodaStream Is Hungry for Flavor

The pop star teams up with a realty show maven.

Feb 11, 2014 at 2:16PM

SodaStream (NASDAQ:SODA) shares have been bubbly since Coca-Cola (NYSE:KO) invested $1.25 billion for a 10% stake in Green Mountain Coffee Roasters (NASDAQ:GMCR), but that doesn't mean that it's going to be quietly sipping mint juleps on the porch until PepsiCo (NYSE:PEP) arrives as a gentleman caller to sweep it off its feet.

SodaStream announced yesterday that it's teaming up with Bethenny Frankel's Skinnygirl lifestyle brand to create a line of better-for-you flavors that will jazz up SodaStream's carbonated creations.

It's a smart move, and not just because it's incremental to SodaStream's business. SodaStream will report quarterly results later this month, and if it's anything like the budding pop star's previous quarter, it's going to be a little light on flavoring. SodaStream's third quarter was disappointing as flavor unit sales rose just 7% worldwide and actually fell 3% in the United States.

This doesn't mean that SodaStream's portable small appliance is peaking in popularity. In fact, during those same three months it experienced a 34% spike in carbonator refills and a 27% surge in soda makers.

Folks are buying the namesake starter kits, hence the 27% pop. Folks who own them are using them, hence the 34% uptick in CO2 canisters. However, the appetite for flavored sodas hasn't been the same lately. The logical conclusion here is that a lot of people are buying SodaStream because they prefer carbonated water over still water, and they like the convenience of making fresh seltzer at home. Another reasonable explanation is that folks use SodaStream's fizzed carbonated water to mix with heartier libations.

SodaStream doesn't mind. There are generous margins to be had in the carbonation refills. However, it would also love to cash in on the high-margin syrup front, and here's where it's important to remember that Frankel's brand was birthed with the introduction of the Skinnygirl Margarita mix. In short, the brand already resonates in the drinking community.

These will continue to be interesting times for SodaStream. Coca-Cola teaming up with Green Mountain to introduce the rival Keurig Cold platform will be a defining moment for both companies. However, given that Green Mountain's success has been largely contained in the U.S. -- unlike SodaStream, whose product has penetrated several overseas markets at better rates than stateside sippers -- the door really is open for PepsiCo to beat Coca-Cola globally here by either teaming up with SodaStream or buying it out.

In the meantime, this is no time for mint juleps on the porch -- unless Frankel has a Skinnygirl flavor for mint julep.

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Rick Munarriz owns shares of Green Mountain Coffee Roasters and SodaStream. The Motley Fool recommends Green Mountain Coffee Roasters. It recommends and owns shares of Coca-Cola, PepsiCo, and SodaStream. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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