Fizzio Isn't the End of Starbucks and SodaStream

Starbucks doesn't have to let go of SodaStream to pursue Fizzio.

Apr 30, 2014 at 1:35PM

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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Rick Munarriz owns shares of Keurig Green Mountain and SodaStream. The Motley Fool recommends Keurig Green Mountain. It recommends and owns shares of SodaStream and Starbucks. 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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