What's On Tap for SodaStream International Ltd.?

How SodaStream can stand out from the pack of carbonation copycats.

Feb 12, 2014 at 10:39AM

Coca-Cola might be crashing SodaStream's (NASDAQ:SODA) party by entering the home soda market, but the rebellious drink maker shows no signs of going flat.

In fact, SodaStream's cranking up the music with its latest leap into the adult beverage market. On Monday, SodaStream teamed up with the low-calorie alcoholic drink company Skinnygirl to co-develop flavors aimed at a female audience. The news followed the comment from SodaStream's chief communications officer that SodaStream has "started thinking about the alcoholic beverages space in a very serious way."

With that in mind, let's see how SodaStream's newest foray into adult beverages could take shape.

SodaStream's second act?
First off, SodaStream's interest in the adult beverage market came as a surprise to this shareholder, but it shouldn't have. SodaStream's core product, after all, was born for a soiree.

Source Red

SodaStream Source. Image source: SodaStream

Its home soda makers, including the "Source" shown at left, encourage customers to create drinks with the right level of flavor and carbonation to suit their taste buds. Custom-crafted cosmopolitans and sidecars are simply a natural extension of the personalized beverage movement, for adults at least.

If anything, SodaStream's arrived to its own party fashionably late. As The New York Times reported last February, users caught on to the custom cocktail craze long ago when they began "hacking" their SodaStream machines to create everything from "herb-infused sparkling wine" to "newfangled sangria."

To date, the only problem with user-driven kitchen innovations with SodaStream is that they don't always come out as expected. Yonah Lloyd, SodaStream's chief communications officer, pointed out the unintended consequences of tinkering with beverages beyond pure water: "If you put other things through that system, there's no way it won't eventually gunk up the works."

For SodaStream, that presents more of an opportunity than an obstacle. While it's doubtful that SodaStream will craft any alcoholic drinks itself, the company obviously has intentions of co-branding or at least partnering with popular cocktail makers in the near future. By trying its hand at drink mixology, SodaStream could eliminate any of the hiccups that might otherwise occur when users freestyle with carbonated liquids and alcohol.

Such a move also steers SodaStream into an industry that generates $189 billion each year in the U.S., according to the prominent beverage industry firm Park Street Advisors. With a sound and sober business plan, SodaStream could be on the cusp of a huge market opportunity.

Beyond the kitchen counter
From my perspective, SodaStream's intentions in the adult beverage market are twofold. First, the company could generate some buzz if it's capable of crafting a hit drink that resonates with the partygoing crowd. We've seen this formula work time and again with everything from rum and Coke to the caffeine-hyped Red Bull and vodka.

Beyond the mixing stage, however, SodaStream's intentions could be even broader. In the background, SodaStream is trying to position itself as a go-to product in every drink-related setting.

As my colleague Rick Munarriz pointed out in 2012, SodaStream's quietly moving forward with an all-in-one water solution known as AquaBar that connects directly to a home's or business's tap water line. SodaStream even hired the famous Milan-based designer Stefano Giovannoni to create this new system that aims to "improve the functionality of the kitchen by making tasks simpler," including "all of the water functions needed in the home or office."

Meanwhile, SodaStream teamed up with Samsung to include a "Powered by SodaStream" tap directly into a high-end four-door refrigerator. Talk about convenience. Suddenly, the towering appliance you and your family access a dozen times a day has fresh still or sparkling water on demand.

Samsung Refrigerator

Samsung's "Powered by SodaStream" sparkling water console. Source: SodaStream.

And there's even more on tap for SodaStream. While the soda maker's known for its consumer-centric appliances, the company also devotes an entire division to SodaStream professional and business-focused products. More industrial by design, these appliances are directly connected to a water supply and can generate the precise amount of carbonated or still water to suit the needs of the user.

But SodaStream has barely scratched the surface with its professional line. Only 350 European restaurants were testing SodaStream's industrial units in May 2013, but plans were in place to expand that footprint to 1,500 units by year-end. Management will likely update investors on their progress along with fourth-quarter results.

Foolish takeaway
At this point, SodaStream's merely scratched the surface in expanding the scope of customized beverages. The Skinnygirl partnership was just announced and the AquaBar and other high-end appliances remain in their infancy. Predicting a potential revenue stream from any of these concepts would be a futile exercise.

However, looking ahead to an increasingly crowded at-home beverage market, it's good to see something's brewing to separate this industry leader from the rest of the pack.

How to find top stocks
SodaStream, for its part, remains focused on product innovation, while ignoring the competition and the stock market noise. That's an attribute common among the great companies and stocks of our time. The Motley Fool's legendary investor Tom Gardner believes product- and customer-focused leaders beat the competition in the long run. Looking ahead, Tom reveals the companies he believes are poised for long-term success in our special report "The Motley Fool's 3 Stocks to Own Forever." These picks are free today, so click here now to uncover the three companies we love.

Isaac Pino, CPA, owns shares of SodaStream. The Motley Fool recommends and owns shares of Coca-Cola 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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