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Is This the Next Big Market for SodaStream?

By Isaac Pino, CPA - Feb 11, 2014 at 7:20PM

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Here's the skinny on SodaStream's next big opportunity in soda.

At-home carbonated beverage maker SodaStream (SODA), unsurprisingly, is not a glass-half-empty kind of company. Last week, when Coca-Cola (NYSE: KO) and Green Mountain Coffee Roasters (NASDAQ: GMCR) announced a partnership that would encroach on its turf, SodaStream execs shrugged and described the development as "recognition that custom carbonation is the future."

This week, SodaStream's made the latest move by inking a deal with the cocktail and drink mix purveyor Skinnygirl. The two companies plan to co-develop flavors tailored to a female audience, but for SodaStream the development could signal something much bigger: a step into the global market for alcoholic beverages.

The skinny on SodaStream's ambitions
SodaStream's tie-up with Skinnygirl comes on the heels of significant partnerships with Ocean Spray, Del Monte, and Welch's to create nonalcoholic juice beverages. With its latest alliance, SodaStream is eyeing a similar opportunity for collaboration but with a slightly different mix.

Skinnygirl Cocktails, which was founded by celebrity Bethenny Frankel and acquired by Beam (BEAM.DL) in 2011, produces low-calorie alcoholic drinks, including wine, vodkas, margaritas, and ready-to-serve cocktails. For SodaStream, the alliance provides an entry point into the potentially lucrative alcoholic beverage market, an industry the company has been eyeing for some time. SodaStream's chief communications officer Yonah Lloyd provided insight on the company's ambitions in a recent presentation:

We've also started thinking about the alcoholic beverages space in a very serious way. Sparkling alcoholic beverages of course are quite popular. We did a test pilot a few months back. There is a drink called Campari Spritz if you're familiar with it and it's Campari, Prosecco and sparkling water.

This was huge. We did it in Italy... Literally, people lined up outside the door as soon as this product was announced. So we get a sense that there will be a great desire if we can drive and compel purchase on this to combine the SodaStream experience with the world of alcoholic beverages and we are obviously interested in this. We're already in discussions with several companies. So it's something interesting to see coming down the pipe.

In short, SodaStream is looking to party, and Skinnygirl's helping the company get on the guest list. Perhaps Campari, the popular Italian cocktail liqueur, could be the next relationship for SodaStream. Either way, SodaStream's clearly courting additional partners.

Whether potential tie-ups will lie under the Beam umbrella is unclear, but the beverage giant, which was recently acquired by Suntory Holdings, has quite the portfolio. Beam's brands include everything from the classic Jim Beam bourbon to the high-end Courvoisier cognac label. If SodaStream's looking for a foot in the door in the spirits arena, Beam's not a bad place to start. But shareholders will likely have to wait until SodaStream's earnings call in late February to gain additional insight into the alcoholic beverage opportunity.

SodaStream's Source machines. Source: SodaStream.

Why SodaStream's in good spirits
Could co-branded alcoholic beverages be the next big market for SodaStream? Well, the market for mixed drinks definitely has mass appeal. To put this into perspective, alcoholic beverages make up more than half of the $331 billion U.S. beverage market, raking in $189 billion annually. Of that amount, 49% of the market is focused on distilled spirits or wine that could be used in combination with sparkling sodas, while the other 51% consists of beer and malt beverages.

SodaStream is tiptoeing into a vast, untapped territory, but the company clearly has broader ambitions. Shareholders will want to keep an eye on whether SodaStream can hitch its wagon to even bigger players beyond Skinnygirl in the near future. For now, the latest partnership and foothold into a huge alcoholic beverage market is just another reason I believe the company can succeed without the help of a soda giant like PepsiCo. Either way, with shares up 20% over the past week, the future looks quite bubbly for SodaStream.

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