Fizzio Isn't the End of Starbucks and SodaStream

Chatter suggesting that Starbucks (NASDAQ: SBUX  ) may be taking a minority stake in SodaStream (NASDAQ: SODA  ) has started to die down lately. It probably didn't help that Starbucks -- during last week's earnings call -- announced that it would be ramping up the expansion of its own carbonated beverage platform. Starbucks plans to roll out Fizzio -- its own slate of handcrafted soft drinks -- in roughly 3,000 stores across the sunbelt ahead of the summer season. 

This is a notable event, and fellow Fool Rich Duprey suggests that Starbucks throwing more of its weight behind a proprietary format would make hooking up with SodaStream pointless.

I disagree. For starters, let's consider Starbucks and its relationship with Keurig Green Mountain (NASDAQ: GMCR  ) . Starbucks has only intensified its participation in getting its signature brews into Keurig machines, and the 2012 introduction of its own Verismo single-serve coffeemaker didn't get in the way of that. 

Starbucks would naturally prefer if it could turn Fizzio into more than just an in-store sensation. It trademarked the name late last year to include both the carbonator and the beverage line. If consumers flock to its pop at its stores, it wouldn't be a surprise to see Starbucks try to make it available at home. This is what it has done with the retail distribution push of its coffee in bags and K-Cups. If it believes in the strategy of getting its ingredients out there for folks to duplicate the experience at home, why wouldn't it do the same with soda?

However, just as Verismo hasn't made much of a dent on Keurig's stronghold, why would Fizzio -- or even Keurig's own Keurig Cold -- topple SodaStream? It's the global leader with healthy market penetration rates across several countries. Even if Starbucks were to try its hand at promoting the mixing of premium sodas at home by putting out Fizzio machines for consumers, wouldn't it just validate the cheaper and more accessible SodaStream machines? Isn't this exactly the same thing that happened with Verismo's arrival pumping up Keurig Green Mountain?

Starbucks blew it with Keurig Green Mountain. It could've bought it out or at least acquired a significant stake when it was on the rocks. Now it has the same opportunity with SodaStream. Whether or not Fizzio is a success, if Starbucks ever plans to put out its spiced root beer, lemon ale, or golden ginger ale flavors into retail distribution, it will gain more leverage if it's done in association with SodaStream bottles and its SodaCaps. If it aspires to do to carbonated beverages the same upscale culture repositioning that it has done with coffee and is now doing with tea and juices, it will be easier to work through SodaStream's entrenched position than to try to compete against it. 

Coke didn't have a choice. It had to go with Keurig Cold because it's the one platform that protects its syrups. No major soda maker is ever going to betray its bottlers by putting out syrup bottles. However, Starbucks doesn't have that relationship at all when it comes to carbonated beverages. It's just getting started. Even if Fizzio beverages do wind up bottled and sold at your local grocery store the way Frappuccino drinks are now, the handcrafted culture is something that started with SodaStream decades ago.

None of this means that Starbucks is buying some or all of SodaStream. I was fashionably early on the chatter two weeks ago, but that was just a matter of connecting the dots after Israel's Calcalist singled it out as a potential buyer alongside a couple of soda giants. Starbucks taking an interest in SodaStream makes sense on many different levels, and expanding Fizzio is not the end to that logic.

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  • Report this Comment On April 30, 2014, at 6:27 PM, Beno2539 wrote:

    I agree. As a SODA and SBUX shareholder I see a great fit between the two and would love to see it happen. I can see a day where I get my daily Vente bold, grab a couple ginge ale syrups to go for the kids at home, and swap my CO2 canister all in the same transaction with my favorite barista.

  • Report this Comment On May 01, 2014, at 11:02 AM, BallStocks wrote:

    Maybe over the long term a suitor may show interest in SODA, however in the short term, especially going into earnings on May 14th, the risk is too high for a suitor to make an announcement. SODA needs to prove itself first, before a suitor would partake int he company. AS the saying goes, you don't try to catch a falling knife. Therefore, I believe no other company would make an investment yet. Especially with the weak GDP numbers, it makes a luxury like SODA even more precarious.

    At the time of this article and comment, SODA appears to be having issues growing it's user base within the United States (the largest consumer of soft drinks), but they just made an announcement of a key hire COO to grow their business in the International marketplace.

    Yet Zack's investment analysts just rated SODA a strong sell. Why? Could it be a doubt that if you can't grow your business in the largest market (USA), then how can you have a prayer of success in the un-experienced International Market? Or the past experience of Yoram Evan, their new COO, as being the CEO of an upscale department store in Russia. I am also wondering what that type of experience has in relation to expanding a sales & distribution network in International Markets? I think they should have grabbed someone from an existing market leader like Pepsi or Cuisinart, who has experience in the luxury home appliance market.

    SODA also announced an S-8 to issue an additional 290,000 shares to be used for employee compensation. Does that imply they don't have enough cash on hand to pay employees wages or bonuses? We will find out on earnings day.

    Recall that SODA was also the subject of a Pepsi buyout rumor last year, which also went no where.

    However, this stock has lots of die-hard fans who seem to think it will be the next big thing, so we will need to wait & see what happens in the short term. The stock also has it's share of shorts, and critics, many can be seen on twitter threatening boycotts of SBUX if it buys a share. It is a very volatile situation to have a factory in the middle east, but will take a lot of cash to open a new factory elsewhere, and I don't think they have the cash for that, so a secondary offering would be needed if that was a strategy going forward.

    Just some things to think about. Good luck to all.

  • Report this Comment On May 01, 2014, at 11:58 AM, Risky88 wrote:

    trouble expanding user base in the United States?

    Where did you get that information from? Please tell!

    SodaStream had 49% growth in Flavors last year and 59% growth in CO2 exchange YOY in the United States alone.

    Trouble expanding user base? If those type of numbers spell trouble, you must not be invested in any company on the exchange.

    Go back and read the CC from Q4.

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