Now that the buyout chatter surrounding SodaStream (SODA +0.00%) appears to be dying down, we can get back to analyzing the strength of the model itself.
One of the things I love about being a Fool is that we encourage opposing opinions. I started the Dueling Fools feature in the mid-1990s on the premise that two educated dissenting opinions are more valuable to an investor than a single bullish or bearish diagnosis.
It's in that spirit that I enjoyed reading Fool blogger Sam Mattera's post over the weekend, calling out SodaStream as a fad.
I disagree with the conclusion. I wouldn't be a shareholder if I didn't. However, I enjoy coming across well-argued perspectives that are different from my own.
SodaStream has for years been called a fad, but that argument been debunked by now. Let's explore some of Sam's more reasonable points.
He begins by describing how the kitchen-appliance landscape has been unchanged for decades, so why should SodaStream break the mold of the ice cream maker, juicer, and waffle iron that's often banished to the back of the cupboard after the novelty wears off?
Well, reality shows us that even traditional appliances do get disrupted. The toaster is still the toaster, but how many people still replace their drip coffee makers with new drip coffee makers? Green Mountain Coffee Roasters (GMCR +0.00%) -- a company that often gets compared with SodaStream, given their somewhat similar razor-and-blades beverage models -- has revolutionized the way we view coffee brewers, with its Keurig single-cup systems. It has penetrated just 13% of the domestic households, but its brewers continue to be the industry's top-selling coffee makers.
In short, kitchen appliances do change.
Comparing SodaStream with crepe makers and George Foreman grills is also not fair. Folks consume soda daily. There may be something wrong with you if you're popping down two or three crepes a day.
Then we get to assessing the faddishness of the Foreman grill or Margaritavilla frozen-drink maker. It's pretty clear for these gadgets that sales stop happening. SodaStream thankfully provides a wider range of metrics, because it generates revenue with every use. As folks use the machines, we see the metrics of consumables. As long as that's growing -- just as Green Mountain's K-Cups -- we know that the appliance is gaining in popularity.
So how's that carbonated pet rock and hula hoop doing? SodaStream's been entrenched in Europe for years, and it's still mustering double-digit growth. Closer to home, where SodaStream made a big splash in retail distribution three years ago, growth has been even stronger. Stateside unit sales of soda makers, gas refills, and syrups rose 78%, 101%, and 119%, respectively, in SodaStream's latest quarter.
If this is a 2010 fad, why are starter kits still growing at a 78% clip in this country? If folks aren't using them, why are the carbonators and flavor bottles growing even faster?
SodaStream also has just 1% of household penetration in this market. Clearly, we're not at Keurig levels here, but why are we near the ceiling (if this was a fad) instead of the floor (if this isn't) when SodaStream has had greater success in regions where it's been doing business longer?
SodaStream has at least 10% of the household markets in four countries, and we consume more soda in this country than anywhere else.
There have been faddish systems in the past that added fizz to flat water, but they never had the retail distribution, whereas most of the leading retailers around the country now sell SodaStream consumables, and many will swap out your empty carbonator at half price.
All washed up
Sam's final argument is that folks will continue to enjoy canned and bottled soda despite the convenience of home-based carbonated beverages because the bottled-water industry shows that folks are willing to pay up for something as a substitute for something that's nearly free.
Is that why folks really drink bottled water? No. They consume bottled water because they think it's better. They don't trust the rusty water fountain in the office building. You don't get any fresher than making soda on the spot, and as the SodaStream flavors expand and evolve -- just as Green Mountain's K-Cup lines have expanded through third-party partnerships with great beverage brands -- it will make the argument to buy and use a SodaStream that much more convincing.
SodaStream isn't the next microwave, but it's certainly not the next hand-cranked ice shaver.
