5 Reasons Why Starbucks Should Buy SodaStream

Source: SodaStream.

Shares of SodaStream (NASDAQ: SODA  ) popped higher today after a report out of Israel suggests that a major beverage company is in talks to buy a minority stake. 

Calcalist -- the same Israeli financial daily that reported on PepsiCo's (NYSE: PEP  ) interest in acquiring all of SodaStream 10 months ago -- is again taking the lead in cracking open the rumor mill. Its sources claim that a beverage giant is gearing up to buy as much as a 16% stake in SodaStream, giving it a foothold in the global leader of in-home carbonation. 

PepsiCo, Dr Pepper Snapple Group, and Starbucks (NASDAQ: SBUX  ) are three potentially interested parties singled out by Calcalist. On the surface, it's easy to see why PepsiCo or Dr Pepper Snapple would be interested. Coca-Cola (NYSE: KO  ) invested $1.25 billion for a 10% stake in Keurig Green Mountain (NASDAQ: GMCR  ) earlier this year. The move was made ahead of Keurig Green Mountain's release of Keurig Cold, a new system rolling out in the company's next fiscal year that makes carbonated beverages. If Coca-Cola is getting into the home carbonation game, how can PepsiCo or Dr. Pepper stay away?

Well, there is a very good reason for them to stay away from SodaStream. If PepsiCo and Dr Pepper begin selling their prized syrup for the home market -- available to not just anyone with a SodaStream machine but to anyone with a bottle of seltzer -- it would crush its retail business. It would betray the regional bottlers. Coca-Cola is going with Keurig Green Mountain instead of buying all of SodaStream for $1.25 billion because Keurig Cold will be tightly regulated through self-contained and likely quite expensive carbonation pods. SodaStream has SodaCaps, but that's just syrup in a cup. The pop stars will want more product protection than that.

This brings us to Starbucks. There are plenty of reasons why Starbucks would make sense as either a minority stakeholder in SodaStream or an outright buyer of the entire company. Let's check them out.

  1. Unlike PepsiCo or Dr Pepper, Starbucks doesn't have any existing carbonated beverages at the retail level or bottlers to burn.
  2. Starbucks is a reluctant partner with Keurig Green Mountain when it comes to super-premium K-Cups. Its own Verismo failed to gain traction. Now it has a chance to be the category leader ahead of Keurig's entry in this market.
  3. The java giant has acquired niche leaders in juice bars and tea. Soft drinks is a logical next step as it continues to evolve beyond coffee.
  4. Starbucks began testing handcrafted carbonated sodas at some of its Seattle stores last year, expanding the offering to Austin and Atlanta a couple of months last summer. Arming baristas with carbonators is already happening -- now it can make it a branded affair.  
  5. SodaStream is growing a lot faster than Starbucks. Margins were squeezed during the holiday quarter at SodaStream as a result of poor inventory allocation decisions, but that's something that would naturally improve under the more seasoned Starbucks.

Starbucks and SodaStream getting paired up makes sense. It doesn't mean it's going to happen. Calcalist was ultimately wrong about PepsiCo paying as much as $95 a share to acquire SodaStream. However, there's an opportunity for Starbucks to buy a faster-growing company leading an important product category at a price point that would be accretive to earnings. 

It's a no-brainer, with or without a caffeinated assessment.

Three stocks poised to be multibaggers
The one sure way to get wealthy is to invest in a groundbreaking company that goes on to dominate a multibillion-dollar industry. Our analysts have found multibagger stocks like Netflix time and again. And now they think they've done it again with three stock picks that they believe could generate the same type of phenomenal returns. They've revealed these picks in a new free report that you can download instantly by clicking here now.


Read/Post Comments (0) | Recommend This Article (5)

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: 2917895, ~/Articles/ArticleHandler.aspx, 9/30/2014 6:01:50 PM

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