SodaStream Steals a Play Out of Keurig's Playbook

SodaStream (NASDAQ: SODA  ) has found someone new to paint its fence.

Just as Tom Sawyer tricked his friends and neighbors into fulfilling his punishment of whitewashing a fence, SodaStream is getting somebody else to do the most unsatisfying part of doing business. Whirlpool's (NYSE: WHR  ) KitchenAid introduced the Sparkling Beverage Maker yesterday, incorporating SodaStream's in-home carbonation technology into the kitchen appliance icon's product line. The two companies had announced this alliance nine months ago, but it's now hitting the market after missing the original rollout date ahead of last year's holiday shopping season.  

KitchenAid's machine is gunning for the high end of the market. The countertop soda maker, with its all-metal design emulating the curved look of its popular stand mixer, carries a suggested retail price of $250. By contrast, SodaStream's namesake machines can be had for as little as $79. 

Source: KitchenAid.

This is a big win on many different levels. At the most basic tier it's incremental business for SodaStream. KitchenAid's association will help expand awareness of the in-home carbonation market. It will also validate the platform. Keurig Green Mountain (NASDAQ: GMCR  ) has never had a problem pushing its namesake coffee brewers, but the market really started to take off in 2010 when it teamed up with Mr. Coffee, Cuisinart, and others to put out similar coffeemakers that feed off its K-Cup portion pack ecosystem.

This brings us to the second argument in favor of this deal, and that is that starter kits are low- to no-margin items for both SodaStream and Keurig Green Mountain. Keurig makes the lion's share of its profits from licensed K-Cup sales, just as SodaStream relies on pre-made syrups and CO2 refills to bring home the bubbly bacon. Getting someone else to make the razors so it could profit from the blades is a genius move.

Then we get to the third argument, and this one applies solely to SodaStream. The holiday quarter was brutal on the bottom line. SodaStream was able to grow its revenue at a healthy 26% clip with impressive double-digit growth across all three product categories, but it barely broke even as a result of problems allocating its starter systems. It overstocked some stateside retailers, taking a hit as it redirected excess inventory to direct channels and even shipping many units to Canada. SodaStream will hopefully learn from these mistakes, but the beauty of having Whirlpool's KitchenAid on board is that it has someone else to deal with the inventory and allocation issues.

SodaStream should never give up on its namesake systems. Keurig Green Mountain remains its own biggest brewer maker. However, having KitchenAid putting out premium countertop soda makers and Samsung rolling out refrigerators with SodaStream dispensers is huge to a company that was a little incompetent this past quarter in terms of forecasting regional demand and packaging preferences.

The more buckets of whitewash that it can pass around now, the less fiscal whitewashing later.

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