How SodaStream Aims to Distance Itself From the Competition

SodaStream is sharpening its focus ahead of the at-home soda showdown.

May 20, 2014 at 7:00PM

The closer Coca-Cola (NYSE:KO) and Keurig Green Mountain get to launching their jointly created at-home soda-making machine, the larger the beads of sweat become on the brow of SodaStream. And with Coca-Cola increasing its stake in Keurig from 10% to 16% last week, the upcoming duel is only getting more interesting.

Soda V Coke Logos

Source: SodaStream and Wikimedia Commons.

SodaStream's management has remarked that new entrants only validate the do-it-yourself cola market and draw interest to the overall category. This could be the case, but SodaStream still needs to regain its footing after stumbling in recent quarters. It also must craft a strategy to differentiate its machines effectively now that it faces one of the most powerful consumer brands in the world. In that regard, SodaStream's CEO Daniel Birnbaum recently provided insight on the marketing strategy the company plans to deploy:

What we decided at SodaStream to do since we have very few marketing dollars, we have to harness them and focus them; and we've chosen health and wellness to be our lead benefit. We know that consumers are fed up with the soda category as it is, the current leaders of that category are not taking enough initiative and leadership in transforming into a better choice. They continue to put nine teaspoons of sugar in a can and use bad ingredients that consumers don't want.

SodaStream's advertising budget was a mere 2% of Coke's in 2012. Birnbaum recognizes that it will be a lopsided battle on that level, so he's intent on fine-tuning the company's message to consumers. Going forward, we can expect SodaStream's ad campaigns to highlight the relative health benefits of its flavor options versus the heavily sweetened national brands. This departs from the SodaStream of the past by narrowing its core message to one of the five key "trends" it identified in the marketplace, namely, convenience, sustainability, health and wellness, value-for-money, and personalization.

While it's doubtful SodaStream will completely abandon the other four trends, its pivot toward health and wellness makes sense at this juncture. SodaStream's product is measurably superior to Coca-Cola's original beverage when it comes to reducing calories, carbs, and sugar, as shown below:

 Beverage

Serving Size (oz)

Calories

Total Carbs (g)

Sugar (g)

Coca-Cola

 8

 93

 26

 26

SodaStream Cola

 8

 34

 9

 9

Source: SodaStream and Coca-Cola nutritional information.

Beyond cola, SodaStream presents additional nutritional information for eight other classic beverage lines on its website. According to its data, the SodaStream alternative to store-bought brands would reduce a consumer's intake of calories, carbs, and sugar in all but one instance.

Armed with this information, SodaStream can make a compelling case that it offers something a Coca-Cola machine might lack. What's more, SodaStream can tack on the argument that "personalization" further allows consumers to tailor the beverage specifically to match their personal dietary needs. In the face of rising public health concerns about our nation's intake of soda, SodaStream is angling to distance itself from the pack in this one key area.

This marketing maneuver has implications beyond SodaStream's future ad campaigns. For one thing, if SodaStream is doubling down on health and wellness, it's highly unlikely to partner with Pepsi down the road, as my colleague Rick Munarriz pointed out recently. Such a move, which has been speculated on by the media, would introduce Pepsi's more sugar-laden lineup of drinks into the mix through a highly controlled experience, two stipulations that would run afoul of SodaStream's health kick.

Second, with the declaration that marketing will emphasize the comparative nutritional benefits of SodaStream, management seems to be hedging in the event that a Keurig Cold system wins out in the "convenience" category. While we're still in the early innings, this could hold true given that Keurig CEO Brian Kelley said the machine took at least five years to create and will allegedly feature premeasured doses and a carbon-dioxide canister-free proprietary system. If Keurig Cold debuts as advertised, those features would distinguish it from SodaStream's current countertop products. And this means the Keurgic Cold could hold the trump card in terms of convenience by eliminating the process of returning canisters to retailers for a refill, a current pain point for consumers.

For the time being, SodaStream stands atop the do-it-yourself soda market, and it's not yet clear how the entrance of Coke and Keurig will shake up the industry. Nevertheless, SodaStream execs are busy formulating a game plan to defend their turf in the event that Coke's product does offer a compelling alternative. In a true underdog style, SodaStream has its sights set on Coke's Achilles' heel and will emphasize its relatively healthy flavor lineup in the months to come. Only time will tell whether this attribute is enough to persuade a distinctly brand-loyal American audience to fill up its cup with SodaStream.

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Isaac Pino, CPA, owns shares of SodaStream. The Motley Fool recommends Coca-Cola, Keurig Green Mountain, PepsiCo, and SodaStream. The Motley Fool owns shares of PepsiCo and SodaStream and has the following options: long January 2016 $37 calls on Coca-Cola and short January 2016 $37 puts on Coca-Cola. 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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