The handcrafted cold-beverage war is heating up. A few months ago, soda king Coca-Cola (NYSE:KO) announced a sizable investment in at-home coffee-brewing-system maker Keurig Green Mountain (NASDAQ:GMCR). At the time, the partnership represented a serious shot across the bow of SodaStream (NASDAQ:SODA), the pioneer in personalized cold-beverage machines.
Apparently, there's room for one more. Coffee giant Starbucks (NASDAQ:SBUX) has entered the fray with its own product called Fizzio, which it will use to make handcrafted cold beverages in its retail stores. The lineup will include handcrafted sodas as well as Teavana Shaken Iced Teas and will come in a variety of flavors.
Starbucks' strategy taps into consumers' growing desire for healthier carbonated beverages without artificial flavors or high-fructose corn syrup. But before you assume this is just one more entrant in a product line that is quickly becoming saturated, it's worth noting that there's one key feature to the Fizzio that could separate it from the competition.
A three-way battle
Coca-Cola initially invested $1.2 billion to acquire a 10% minority stake in Keurig Green Mountain. Together, the two companies will prepare the launch of the Keurig Cold beverage platform as part of a 10-year agreement. The deal creates obvious synergies, as Coca-Cola will have the potential to get its products to customers through an innovative new system. And Keurig now has the ability to tap into Coca-Cola's world-class brand and massive distribution capabilities.
Coca-Cola increased its investment in Keurig just last month, to 16%, and is now Keurig's largest shareholder. Clearly, Coca-Cola sees the at-home beverage platform as a compelling opportunity.
The investment is a fairly low-risk proposition for Coca-Cola. It could strike gold if the technology is universally adopted, and considering shipment volumes of sparkling beverages are stagnant in the United States, it's certainly an idea worth pursuing. Plus, Coca-Cola's investment is essentially a drop in the bucket for the company, as it collected $1.6 billion in profit just last quarter.
Things aren't getting easier for SodaStream
Pressure is now on SodaStream to pursue a partnership of its own, and there's a reason why. SodaStream's growth is decelerating. Its revenue growth declined by almost half last year, from 55% in 2012 to 29% in 2013. Net profit actually fell 4% last year, and SodaStream's stock price is following suit. Shares are down roughly 25% just since the start of this year.
The competitive landscape is starting to chip away at SodaStream, and it's only going to get more difficult now that Starbucks has tossed its hat into the ring. Importantly, Starbucks' Fizzio machine has a unique feature that distances it from SodaStream.
Unlike existing at-home carbonation products, the Fizzio machine carbonates finished beverages. This means that every ingredient receives the same amount of carbonation, whereas SodaStream simply carbonates the water, with flavors added afterward.
Starbucks will also offer a more customized experience. Customers will be able to adjust the amount of carbonation in each beverage. You can also add the "fizz" to an existing beverage offering for just $0.50.
The Foolish bottom line
Even though SodaStream held first-mover status in personalized cold-carbonated beverages, it's quickly losing ground. Coca-Cola and Keurig Green Mountain are teaming up to develop an at-home carbonated-cold-beverage machine. This holds great promise considering Coca-Cola is one of the biggest companies in the world with the financial strength and distribution to do just about anything it wants.
In addition, things are getting even more complicated because Starbucks is now getting involved. Going forward, it's rolling out a new product called Fizzio in select markets. The Fizzio will allow users to carbonate beverages at Starbucks stores. In addition, the product offers a different experience that separates it from from SodaStream because it carbonates the entire beverage, including the flavors, and not just the water.
As a result, while Keurig Green Mountain and Starbucks are developing unique features, SodaStream is quickly looking like a thing of the past.
Bob Ciura has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola, Keurig Green Mountain, SodaStream, and Starbucks. The Motley Fool owns shares of SodaStream and Starbucks 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.