Wal-Mart Rollout Puts the Fizz Back Into SodaStream


SodaStream (NASDAQ: SODA  ) continues to offer the promise of providing a home beverage maker solution for the U.S. market, yet the company struggled through a difficult couple of quarters that has the stock at multi-year lows. After decades of solid growth in Europe and continuing success in the first quarter, the Americas were suppose to offer unlimited growth with the ability of the home beverage maker to take market share from Cola-Cola's  (NYSE: KO  ) and PepsiCo's vast soda operations. The recent seasonal summer display by retail giant Wal-Mart Stores (NYSE: WMT  ) offers some hope for reinvigorated growth in the very important U.S. market.

For various reasons including an inventory overstock and a brutal winter that greatly damaged the whole retail sector, revenue for the Americas  plunged 28% to a meager $34.8 million for the quarter. For investors following SodaStream this news was right in line with expectations. For those who see the recent weakness as only a bump in the road typically encountered by high-growth stories, the recent mega roll-out by Wal-Mart provides ample reason to believe that the long-term potential has not disappeared.

Wal-Mart's plan
A couple of weeks ago, the massive retailer implemented a 20-foot seasonal hotspot roll-out in 1,600 stores. The plan involves leaving the SodaStream products on display for 12 weeks, or basically covering the summer months. Interestingly, the plan didn't impact the previous 4 foot displays, providing the company with 24-feet of exposure at roughly half of the domestic Wal-Mart store base.

Part of the issue with disappointing first-quarter domestic sales was the tough comparisons from the program that took place at Wal-Mart and lasted until May 2013. The current program vastly exceeds the one from last year and it has dramatically more shelf space.

One important part of this plan is the limited number of soda makers actually on display that will reduce inventory issues after the program ends. Prominent in the displays are the new Play soda makers that offer a compelling entry price point, and -- even more importantly -- there is limited supply on the shelves. During a visit to my local store (something every investor should do to better understand the roll-out), the inventory levels in these new displays were only a few per machine.

The ironic part of the Wal-Mart move to expand the display for SodaStream during the summer is that the company reduced inventories across the board last year.

The U.S. is down but not out
The domestic retail story for SodaStream gets confusing due to revenue recorded based on sell-in to retailers, and the best sellout data from NPD Group excludes the company's top customer. In essence, the numbers are always doomed to lumpiness with inventory builds not always matching retailer sales.

For the first quarter, the encouraging numbers were the most important -- the usage-based ones. According to the company, gas refills increased 27% to hit a record of 1.4 million. Globally the number of gas refills hit 5.8 million to match the record from last summer and easily exceed the 4.8 million from the first quarter of 2013.

Source: SodaStream Form 6-K

Flavor units declined only 6% in the U.S. compared to 19% for the soda makers, again suggesting that absent the inventory issues customers were busy using the product.

Bottom line
These enhanced plans by Wal-Mart should indicate to investors that SodaStream is far from fizzling out in the Americas. Even more, it is intriguing that a company already selling so many products by Coca-Cola and PepsiCo would invest this much shelf space to a company intent on replacing those large customers. Clearly, if Wal-Mart had any inclination that the U.S. consumer didn't favor the SodaStream products, it wouldn't invest this much time and effort into it. And Coca-Cola definitely wouldn't invest $1.2 billion into Keurig Green Mountain if the Americas lacked growth potential in cold beverages made at home.

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Mark Holder

Mark has been writing for TMF since Dec. 2012 with a primary focus on taking advantage of opportunities provided by the market in the energy and tech sectors.

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8/28/2015 4:00 PM
KO $39.45 Up +0.18 +0.46%
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WMT $64.94 Down -1.14 -1.73%
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