SodaStream (Nasdaq: SODA) is more powerful than naysayers think.
Shares of the company behind the popular home-based beverage system rose 5% yesterday after it struck a deal with Kraft Foods (NYSE: KFT) that will find Crystal Light diet drinks and Country Time lemonade available as co-branded flavors for SodaStream's fizzed-up water.
This deal is huge for two meaty reasons.
The first important takeaway is that Kraft -- a global giant with nearly $50 billion in annual sales -- should help open doors for SodaStream in the retail grocery space. SodaStream has been expanding its base of distributors since the Israeli's company stateside push began in 2010. A phenomenon that began at home-goods retailers has spread to include office supply superstores, warehouse clubs, cheap-chic discount department stores, and even the country's leading consumer electronics chain.
The missing link has been penetrating grocery stores, but Kraft's household name should help open more than a few automatic sliding doors at major supermarket operators when the new SodaStream syrups hit the market next quarter.
The other reason investors need to take this seriously is because Kraft didn't need to play nice with SodaStream.
Investors like to compare SodaStream to Green Mountain Coffee Roasters (Nasdaq: GMCR), but it's an unfair pairing. Green Mountain's patent-protected K-Cups make it legally impossible -- for the next few months, anyway -- for an unauthorized third party to sell flavored coffee refills for Keurig single-cup brewers. SodaStream has a proprietary carbonator system that needs to be replenished, but there's nothing stopping anyone from manufacturing freely poured syrup that turns the seltzer into flavored soda.
Kraft could have very well come out with Crystal Light and Country Time concentrated syrup bottles without any financial or branding ties to SodaStream. Obviously, SodaStream would still have benefited from the move. It would still be selling the carbonator refills, and the product would validate the initial purchase of the system. Why did Kraft have to play nice? It obviously sells its Mio water flavors without tethering itself to any single bottled water company.
Well, it could be that Kraft realizes that this is pretty much the only game in town. Primo Water's (Nasdaq: PRMW) flavorstation had a shot, but the water specialist warned in November that it would only ring up $1 million to $2 million in flavorstation sales during the holiday selling season.
Kraft did this the right way, and it opens the door for others to follow suit. Obviously, we'll never see the cola giants undercutting their bottlers this way. Energy drink makers make more sense. SodaStream already has its own energy drink syrup. However, I can't see Red Bull or Hansen's (Nasdaq: HANS) Monster putting out a product that undercuts its own high-priced canned offerings.
Then again, what if SodaStream pulls a page out of the Green Mountain playbook? What if it turns to both Red Bull and Monster and says that it will only officially back one super-premium energy drink company? The first one to agree to a co-branding deal would lock up exclusivity -- at least when it comes to co-branding for energy beverages. Would one of the two biggies here blink?
SodaStream is more powerful than we thought it was. Who knows what it will do for an encore?
As part of the CAPScall initiative for accountability, I went ahead and started a bullish call for SodaStream on Motley Fool CAPS last year. Feel free to play along.
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