A wave of innovation is changing the way consumers are served beverages. PepsiCo (NYSE:PEP) recently announced a new-and-improved soda fountain, dubbed Pepsi Spire, that could help it gain ground in the restaurant space. However, the real excitement is coming from the at-home carbonation channel, where Keurig Green Mountain (NASDAQ:GMCR) and SodaStream (NASDAQ:SODA) are leading the charge. With a few miniaturizing adjustments, Pepsi Spire could soon compete with the best in the at-home carbonation space.
Squeezing into a niche
Pepsi Spire is a touchscreen soda fountain that comes in three different sizes: a countertop unit with a 10-inch touchscreen that allows for up to 40 beverage combinations, a larger countertop unit with a 15-inch touchscreen and 500 possible beverage combinations, and the newest addition that comes with a 32-inch touchscreen and more than 1,000 possible combinations.
In its current incarnation, Pepsi Spire is intended for use in restaurants, movie theaters, and other public establishments that serve beverages. However, SodaStream's success in the at-home carbonation market, and Keurig Cold's upcoming entry into the market, could prompt PepsiCo to create an at-home version of Pepsi Spire.
Moreover, Pepsi Spire would occupy the space between Keurig Cold and SodaStream. Keurig Cold plans to offer big brands with wide name recognition so that consumers can make their favorite sodas exactly how it tastes from the can. The emphasis is on quality and predictability. SodaStream, on the other hand, emphasizes customization. SodaStream allows consumers to choose how much carbonation, how much flavor, and how much sweetener to add to their drinks. It empowers consumers to build the beverage exactly how they want it.
Pepsi Spire offers the best of both: It is highly customizable, but it also includes PepsiCo's portfolio of recognizable brands and enables users to make exact measurements. As a result, users can create custom beverages that come out the same way every time. In addition, Pepsi Spire is part of the Internet of Things; it connects to a "smart network" that collects data and recommends beverage combinations. This opens all sorts of possibilities for social interaction and data analysis that are not available on Keurig Cold and SodaStream.
Syrup suppliers will be the real winners
In the long run, it is better to be a net user of technology rather than a creator of technology; innovative technology created by one company will be replaced by even more innovative technology created by another, so the real winners will be the users of technology. SodaStream's successful entry into the U.S. market may have prompted Keurig to develop its own carbonation platform that could disrupt the at-home channel. Now, Pepsi Spire could enter the at-home space and compete for dominance. Another device will surely follow, perpetuating the cycle of innovation as long as demand exists.
Fortunately for PepsiCo, the No. 2 soft-drink company stands to benefit no matter which device is on top. Since the flavors and carbonation will generate much larger margins and sales volumes than the countertop devices, the key for PepsiCo is to get its brands into as many households as possible. CEO Indra Nooyi has emphasized the company's intention to work with multiple platforms until a clear winner emerges. It could conceivably partner with Keurig and SodaStream to have its brands represented on all major platforms. This would offer PepsiCo wide distribution in the at-home channel while increasing the value of each of its partners' platforms by lending its brand power. The net result would be more beverage sales for PepsiCo.
Pepsi Spire is a few tweaks away from shaking up the at-home carbonation channel. SodaStream's at-home soda maker is already taking the U.S. by storm, while Keurig hopes its device has similar success. If PepsiCo releases its own at-home countertop device, all three will be locked in a battle for market supremacy. However, as a company intent on increasing beverage sales, PepsiCo will reap the largest gains from the frenzied excitement and continual innovation in at-home carbonation.
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Ted Cooper has no position in any stocks mentioned. The Motley Fool recommends Keurig Green Mountain, PepsiCo, and SodaStream. The Motley Fool owns shares of PepsiCo and SodaStream. 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.