The market's reaction to the recent rumors of iconic American brands wanting to take a stake in SodaStream International Ltd. (NASDAQ:SODA) gives insight into what retail investors want from SodaStream USA—a more concrete connection with the American consumer.
Yes, a partnership with PepsiCo, Dr. Pepper Snapple, or Starbucks might establish that solid connection overnight. But at this point those are speculative partnerships, and retail investors should focus on what SodaStream USA is currently doing to establish that connection.
SodaStream is not the classic story of an iconic American brand spreading globally. Instead, SodaStream is a solidified company in Europe making inroads into the United States. For many retail investors, the concept of the United States as a secondary market is at best a muddled proposition. Thus many doubters have risen up, calling the product a fad and supporting their assertion by being willing contributors to the massive short interest of over 7 million shares. On the opposite spectrum are value investors, who have recently picked up shares at a P/E of below 20 and a P/B of below 2.5. These investors are likely realizing the potential of SodaStream USA to connect with the American consumer in the near term.
Grocery Aisle Coming Attractions
To establish a solid connection with the American consumer, SodaStream USA needs to place its products on shelves at local grocery stores. This will create convenience for consumers buying soda mixes and exchanging carbonators during their weekly shopping trips. It will also further brand awareness and lead to the adoption of SodaStream as a household brand in the United States.
And in fact, SodaStream USA is already doing just that and may be farther along than most investors realize. In addition to having Wegmans and Fred Meyer listed as partners on their website, several other grocery chains are popping up in SodaStream's "store locator" search. In San Antonio, for example, SodaStream products can be found at HEB Grocery. In Lewisburg, Pennsylvania, products can be purchased at Weis Markets. In the Washington DC Metro area, they are being sold at Giant Food (Laurel and Glen Burnie, Maryland locations) and Rodman's stores. And of course in the city that has everything, New York, customers can find soda makers and carbonators at Whole Foods Bowery.
Without a doubt SodaStream is aggressively pursuing a connection with the American consumer, and 2014 may be the year that connection is solidified—with or without a blockbuster partnership involving an iconic American brand.
Where's the (Soda) Pop?
Investors are definitely glued to the idea that because SodaStream does not have a name brand soda, SodaStream's growth in the United States will be impeded. Yet in many other areas SodaStream USA is making a connection with the American consumer by providing familiar SodaMix flavors ranging from Kraft Food's (UNKNOWN:KRFT.DL) Kool-Aid to Campbell's V8 Splash to the ever-popular Skinny Girl brand. In fact, SodaStream saw signs of early success after their initial launch with Kraft, including 1.2 million Kraft units sold between May and December 2012 (compared to 28.1 million units worldwide in 2012). For 2013, SodaStream expected three times those sales for their Kraft partnership but have not reported any figures to date.
These iconic American brands are a clear and precise way for SodaStream USA to solidify a connection with the American consumer. And with revenue increasing in the Americas by 38.3% in 2013, as compared to 2012, Americans might already be on the hook even without a name brand soda.
SodaStream is a small company that is now eyeing the United States as a secondary market and a huge potential revenue driver. Time will tell whether the product is a fad or fortune with the American consumer, but investors should take note of SodaStream's aggressive efforts to connect. And with SodaStream's soda mixes and carbonators starting to grace the shelves of local grocery stores in the United States coupled with revenue growth over the last three years in the Americas, investors should consider buying shares of SodaStream at the current attractive valuation.
Spencer Naake has a long position in SodaStream and owns shares of Starbucks. The Motley Fool recommends SodaStream. The Motley Fool owns shares of SodaStream. 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. The Motley Fool has a disclosure policy.