SodaStream (NASDAQ:SODA) recently released the "Beer Bar" and its first beer, called the Blondie. While most drinkers would welcome yet another option amid the massive popularity of craft breweries, the Blondie bucks age-old brewing traditions as the beverage is produced with a SodaStream machine and one liter of alcoholic concentrate -- good for three liters of Blondie at 4.5% alcohol by volume.
In this segment from Industry Focus: Consumer Goods, Motley Fool analysts Vincent Shen and Asit Sharma consider the market potential for this controversial but intriguing offering and its potential to help the company with its much needed turnaround.
A transcript follows the video.
This podcast was recorded on June 14, 2016.
Vincent Shen: Something I really wanted to talk to you about is the SodaStream Beer Bar, which just a few weeks ago, market reactions seem to be pretty positive, it jumped 5% the day of the announcement, but could you just give us a quick rundown here of what we're looking at?
Asit Sharma: Sure. This a product that's right now introduced by SodaStream in Germany and Switzerland, I believe soon coming to the U.S. Basically this is a concentrate which will emulate beer. The company calls it "beer" but actually it's slightly different. The concentrate has some glucose syrup in it. It has an aroma of hops, so perhaps not really hops in the concentrate. You can put it into your SodaStream and turn out beer. It's got about 4.5% alcohol by volume. It's a light beer in terms of alcohol. It's going to be fairly cheap. The concentrate one liter at today's exchange rates is somewhere under $3.5, which will make about 3 liters of this beer, their first offering in SodaStream's Beer Bar. This is a new product. Perhaps not truly beer, but an intriguing one nonetheless.
But we are going to see in the U.S. how the SodaStream current owners adopt this. Many people are skeptical. For those of you who read beer blogs or are beer connoisseurs, you've probably heard this product trashed. But as Vince and I, we had a conversation yesterday. Vince pointed out to me and I'll let you take over here, Vince. You haven't seen the review yet in Europe where it's current selling, so we really don't know what the initial indications about this beer are --
Shen: I'd say I'm really curious. Initial launch is in Germany and Switzerland. I think two very strong beer-drinking countries. Germany is usually up there in terms of per capita beer consumption. Switzerland I think has some of the most breweries in the entire continent. I think maybe if they can get the product to have a strong reception there, that gives them some street credibility essentially, but I think a big thing that makes this so attractive is when you think about home brewing kit which might take days at the least, usually about weeks to produce your own batch, whereas here you can do it in potentially seconds, and it's very cost effective. You mentioned the $3.50 for that liter of mix to make 3 liters. I think I calculated it out to be about 3.3 cents or so per ounce of beer for this Blondie through the Beer Bar, whereas if you were to go buy your standard case of maybe a Miller Lite or Bud Light, it comes closer to 5 or 6 cents.
For some people, maybe it's not as discerning, not as concerned with the traditions of how beer is brewed, how it's made, just kind of looking for something that taste good and maybe give them a nice buzz, I could see this potentially working, but in the end, I have to say, it's definitely going to be an uphill battle for them to kind of market this out, because ultimately it's a beer from concentrate.
Sharma: True. As you pointed out, there's no accounting for taste. It's hard to say what the consumer latches on to, what really catches fire and what totally flops. Just a couple of quick comments on this. I think this is what SodaStream as a company needs to do. They need to innovate. They have been able to reinvent themselves a couple of times. They started out as a cold soda type purveyor of soft drinks, and now they moved that to healthier categories. To me, they have almost a new lease on life because the Keurig Kold which is made by Keurig, a cold machine, it's been retired by Keurig's new owner, JAB Holding Company. A potential huge competitor which was backed by the Coca-Cola Company is now been mothballed. This ought to be an opportunity for SodaStream to come up with new innovations like this.
The other thing which we want to be aware of here is that this Blondie or Beer Bar is a prelude to an upcoming product from SodaStream due to hit the second half of this year called SodaStream Mix, and that is going to allow consumers at home to mix their own cocktails. This goes back the alcoholic soda, alcoholic flavored water categories that we talked about. You'll be able to make a hundred different recipes with liquor or sparkling wines. That's going to be a really interesting product for SodaStream. We'll have to see, again, if this is something that totally flops. It does have a higher price point. The machine is going to be somewhere, I've heard, priced between $250 to $300. That was one thing that killed the Kold. But SodaStream does have a more loyal clientele who's used to buying their products.
Again, one of these things to anticipate, but the bottom line is the company is doing what it needs to do. It needs to keep innovating. Last year, sales declined by 19.3%. This is the year, next year to stabilize their sales and help them grow again.