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Better Long-Term Winner: Keurig Green Mountain or SodaStream?

Year-to-date, Keurig Green Mountain (NASDAQ: GMCR  ) has seen its stock surge nearly 20%, while SodaStream (NASDAQ: SODA  ) has drifted in the opposite direction with a drop of almost 15%. Both companies this year have been advancing their respective at-home beverage systems while attempting to build key partnerships with some of the industry's biggest players.

Earlier this year, Coca-Cola (NYSE: KO  ) acquired a 10% stake in Keurig Green Mountain for almost $1.25 billion. Recently, Starbucks (NASDAQ: SBUX  ) has strengthened its relationship with Keurig Green Mountain, while rumors hit recently that Starbucks was also interested in a 10% stake in SodaStream.

In the end, though, will it be Keurig Green Mountain or SodaStream that becomes the big winner in the home-drink-maker wars?

Credit: Keurig Green Mountain

Last quarter's earnings for Keurig Green Mountain and SodaStream
Net sales for Keurig Green Mountain last quarter rose a modest 4% to $1.4 billion as net income rose 28% to $138 million. The big news was the Coca-Cola deal which is a 10-year agreement to develop and introduce Coke products through the new Keurig Cold at-home beverage system.

SodaStream's last quarter showed that net sales increased 26% to $168 million. However, because of weak margins due to heavy year-end discounting and promotions and higher transportation costs between different markets, net income fell to just $0.7 million. In the year-ago quarter, the company reported net income of $7.5 million.

Credit: SodaStream

Why Keurig is the better bet than SodaStream now
Keurig Green Mountain's wide range of product implementation opportunities continue to become a reality as new product introductions arrive for the Keurig machines. Hot cereal, like instant oatmeal,  is the newest product that has become Keurig-compatible.

Instant oatmeal will be the first non-beverage product ever sold for the Keurig and it foreshadows the almost limitless diversity the Keurig machines have in comparison with SodaStream machines. Keurig Green Mountain had previously been in talks with soup manufacturers over making soup with the machines.

The fact that Keurig Green Mountain has now partnered with Coca-Cola may also hint at the possibility of making SodaStream's business obsolete if consumers start drinking Coke and other Coca-Cola products through their Keurigs.

That brings us to another important advantage that Keurig Green Mountain has over SodaStream -- household penetration. Last quarter, Keurig Green Mountain sold a record 5.1 million Keurig brewer systems. SodaStream sold a record 4.4 million soda makers in all of 2013. This rate of penetration has resulted in Keurig Green Mountain having a 13% U.S. household penetration, while SodaStream has just 1%.

Credit: Coca-Cola Company

Soda's declining popularity also doesn't sit well for SodaStream's future. Since 2003, soda drink consumption has dropped from the second most-consumed item to the fourth-most, falling behind sandwiches, fruits, and vegetables.

Additionally, Coca-Cola's recent earnings release highlights the vastness of soda's fall. Global soda volume slipped 1% in the company's most recent quarter, the first decline in the carbonated soda business for Coca-Cola since 1999.

Unlike SodaStream, though, Coca-Cola has hedges against soda's declining popularity. Coca-Cola owns 11 non-carbonated drink brands and each generate over $1 billion in annual retail sales.

In contrast to soda, coffee has been gaining popularity and this is a big plus for Keurig Green Mountain. Coffee consumption increased 5% in 2013 with 83% of Americans now coffee drinkers. Also last year, single-cup brewer owners increased 12%. The fact that net sales for Starbucks grew another 9.1% last quarter to $3.87 billion further supports coffee's increasing popularity.

Keurig isn't just coffee anymore. Credit: Keurig Green Mountain

Then there are the intangibles that push Keurig Green Mountain ahead of SodaStream. Consumers are used to buying coffee makers, but not necessarily soda makers. Quality for coffee has long been perceived as having a quality brewing system filled with the best coffee you can afford. Quality for soda has always meant buying the actual brand-name. In this case, it would be a Coca-Cola product and not an off-brand or a product created by a soda-making machine.

What to watch in the next earnings releases from Keurig Green Mountain and SodaStream
As both companies continue to grow, it should be expected that each show positive net sales and net income growth.

Keurig Green Mountain recently renewed its partnership agreement with Starbucks so any news about the two companies developing new products together will be important. Two billion Starbucks K-Cup packs have been shipped since the partnership began.

The big number to look for in SodaStream's earnings will be soda makers sold. Despite record sales in 2013, SodaStream's lack of household penetration in comparison with Keurig Green Mountain could be a bad sign for the long term. Additionally, any further news of partnerships with Starbucks or other companies will be key in SodaStream's earnings.

Bottom line
A recent study revealed that U.S. consumers spent $46 billion last year on home-related products with a 10% change over 2012 occurring within the small kitchen appliance sales category.  This is a plus for both Keurig Green Mountain and SodaStream.

However, looking at both companies long-term, Keurig Green Mountain has much more upside.  They have shown that their Keurig system can do much more than just brew coffee.  Also their 10-year agreement with Coca-Cola has more potential in creating a beverage ecosystem that truly disrupts not just SodaStream's business, but the entire soda market.  Lastly, with the help of coffee's growing popularity, there is a good chance that the household penetration gap will continue to increase in Keurig Green Mountain's favor over SodaStream.

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Read/Post Comments (2) | Recommend This Article (2)

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.

  • Report this Comment On November 25, 2014, at 1:01 PM, BrianHalicki wrote:

    I think we can see beer taste change for micro brews, soda might be going the same way.

    Instant soda makers will give consumers a choice beyond the can or bottle sitting on a shelf.

  • Report this Comment On November 25, 2014, at 1:21 PM, BrianHalicki wrote:

    I think we can see beer taste change for micro brews, soda might be going the same way.

    Instant soda makers will give consumers a choice beyond the can or bottle sitting on a shelf.

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Michael Carter

I graduated with honors with a B.S. in Mechanical Engineering from Virginia Tech and later got my MBA from the University of Pittsburgh. I'm a Licensed Professional Engineer (P.E.) for the state of Pennsylvania. As an experienced equities investor and Motley Fool member since 2006, I try to show that investing is not only for the pros.

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Related Tickers

8/27/2015 4:00 PM
GMCR $53.99 Up +1.43 +2.72%
Keurig Green Mount… CAPS Rating: **
KO $39.27 Up +0.54 +1.39%
Coca-Cola CAPS Rating: ****
SBUX $55.95 Up +1.99 +3.69%
Starbucks CAPS Rating: ****
SODA $14.42 Up +0.52 +3.74%
SodaStream CAPS Rating: **