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This Is No Threat to SodaStream

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Disruptors always have to make sure that they're not being disrupted themselves.

Shares of SodaStream (Nasdaq: SODA  ) have more than doubled from their offering price since going public four months ago. The company sells home carbonation systems through some of the country's largest retailers of house wares, profiting even more from the CO2 refills and soda flavor bottles to keep things fizzy.

However, one of last week's biggest winners was Primo Water (Nasdaq: PRMW  ) . Shares of the bottled water seller soared 32% higher last week after announcing several compelling developments. Its most eye-catching move -- to me -- was the acquisition of Omnifrio.

On the surface, SodaStream and Omnifrio are angling for the same market. They both make systems that transform tap water into seltzer or flavored carbonated soft drinks.

One of the key differences is that Omnifrio is a closer cousin to Green Mountain Coffee Roasters' (Nasdaq: GMCR  ) Keurig. There's a water reservoir to the side of the appliance. They also both rely on small flavor cups -- K-Cups for Keurig, and Insta-Fresh S-cups for Omnifrio -- to fuel their variety of beverages.

I can see why Keurig has the K-Cups. The grounded coffee beans in the small containers are brewed through the system to deliver premium java. I'm not sure why Omnifrio comes in similar portion packs, beyond simply trying to ape the appeal of Keurig or Kraft's (NYSE: KFT  ) Tassimo.

The Omnifrio demonstration video raises more doubts. The founder closes the lid, which seems to simply puncture the S-Cup so it drips into the cup before the carbonation kicks in. Why can't the cup just be poured into a seltzer serving? Why is there so much splatter into the thankfully tall glass during the demo process?

I'd kick the tires to check it out myself -- the way I did as a converted skeptic with SodaStream -- but it's nowhere to be found.

"Omnifrio will soon become available through your major retailers," reads the site's "How to Buy" section. "Check back with us for a complete listing."

Is this product even real? It is. It sold through SkyMall a couple of years ago at a stiff $299 suggested retail price.

Primo better be marketing these at lower price points, since it's not going to talk too many retailers into carry this at three times the price of the entry-level SodaStream system.

How about those S-Cups? It's a cleaner -- though not as eco-friendly -- route as SodaStream's syrup bottles that offer the equivalent of 33 12-oz servings for $5. Can Omnifrio get away with selling the S-Cups for more than $0.15 each? Emphasizing premium vitamin waters and energy drinks is a smart call. It's something that I hope SodaStream upsells in the future. However, it's going to be hard for Primo to win shelf space for Omnifrio if it's a lousy value proposition.

Let's see. Maybe there's room for both machines. Green Mountain had no problem growing in a sea of coffee makers. Primo better hope so, because SodaStream has momentum. It sold 712,000 of its namesake carbonation systems in its latest quarter alone! SodaStream is showing up in Bed Bath & Beyond (Nasdaq: BBBY  ) circulars, and this week had a product pitch in the circular as large as Keurig got.

Primo is a smart and profitable company with a thick Rolodex of grocery stores stocking its 3- and 5-gallon water bottles. It's going to need it.

Is Omnifrio a real threat to SodaStream? Is SodaStream for real or a passing fad? Share your thoughts in the comment box below.

SodaStream International and Green Mountain Coffee Roasters are Motley Fool Rule Breakers choices. Motley Fool Alpha has opened a short position on Green Mountain Coffee Roasters. Motley Fool Options has recommended buying long-term puts and writing a short-term bear put ladder on Green Mountain Coffee Roasters. The Fool owns shares of Starbucks, which is a Motley Fool Stock Advisor selection. 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.

Longtime Fool contributor Rick Munarriz is a fan of diet soft drinks. He does not own shares in any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.

Read/Post Comments (7) | Recommend This Article (3)

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  • Report this Comment On March 16, 2011, at 9:35 AM, landoncz wrote:

    "Primo is a smart and profitable company"

    Not according to the latest quarter...

    Primo will be found to be the looser here, having overpaid for something with no real intellectual property or design.

  • Report this Comment On March 16, 2011, at 10:40 AM, LQM2 wrote:

    Sodastream showing up in BBBY circulars means SODA still has IPO marketing money to spend, not that the product is flying off the shelves. In my BBBY the Sodastream display is very quiet contrasted to the K-cup display that has lots of activity.

    Sodastream is a Keurig wannabe, but they are completely different from a consumer convenience perspective which is arguably the most important product attribute. The Keurig single cup is the most convenient home coffee delivery system and is making the sloppy old pot obsolete. The beverage industry already has the most convenient home soda delivery system: its called the can. SODA has invented the equivalent of a sloppy old pot for soda and is using clever marketing to try and sell consumers on the so-called benefits. Its like making your own beer, yeah you can do it, and maybe you can get it to taste just like Bud Light, but why?

  • Report this Comment On March 17, 2011, at 7:11 AM, hashapi wrote:

    I have been a shareholder of SODA since the IPO. I have researched the Company, visited many stores in the U.S. that sell their products, and used the product. I think it has one of the best marketing programs of any Company except AAPl and it is a close second.

  • Report this Comment On March 17, 2011, at 12:37 PM, LQM2 wrote:

    I agree that SODA has a good marketing program. I just wonder if they actually have a product that people will continue to use after the novelty factor wears off.

  • Report this Comment On March 23, 2011, at 8:18 PM, rockymtn9 wrote:

    Primo has never been profitable, not in any year, not in any quarter. They were on their seventh bank line amendment in the middle of 2010, before they found a few third tier investment banks to underwrite their offering so they could buy an unrelated business that actually generates some cash flow.

    Those investment banks turned around and slapped buy ratings on the stock, and consensus earnings estimates are $0.41 for this year. It's interesting how little variance there is between estimates, for a company with a history of nothing but losses. One would think profitability is a sure thing. Even if Primo by some miracle achieved the consensus, the stock is at over 30x this years earnings. Could be a long way down.

  • Report this Comment On April 01, 2011, at 6:38 PM, OnTimeAirFilters wrote:

    I use SODA every day. I never flavor it. Ever. Don't even get that idea, and think that is marketing fluff. True benefit is not hauling carbonated water home every day and not burning all those bottles. Have used almost every day for 18 mos. Bought the stock shortly after IPO. Have owned GMCR for years.

    Interesting. I wonder how broad GMCR's patents over kcups go and whether the flavor-by-sealed-cup might create an infringement issue for the water company...

  • Report this Comment On September 01, 2011, at 4:23 PM, ddbikessamsara wrote:

    Primo also is bringing out a version of the Flavorstation carbonator that is extremely similar to the Sodastream units and should compete strongly. This will be available in Q4 and looks to be an excellent complement to the water dispenser and bottled water operations. Two versions of Primo Flavorstation - the 100 and 500 models. 500 model is the one in the video - similar to a Keurig machine. The 100 is smaller, very much like a Sodastream unit and the starter kit (carbonator, serving bottle, gas cartridge, and syrup) is priced at $99. CO2 cartridges will be exchangeable at all locations where Primo water bottles are exchangeable.

    Primo actually worked closely with Keurig developing the S-cup machine so infringement would seem to be a non-issue.

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