There are three things that become obvious when you take a look at SodaStream's (NASDAQ:SODA) soon-to-be-launched "Play" machine. Go ahead, steal a glance for yourself and see what the following image stirs up:
First off, its hard-to-deny that it's SodaStream's simplest, most streamlined device yet. The footprint seems smaller than its predecessors, whereas the parts look more distinct and, according to SodaStream, easier to adjust.
At the same time, the loud, multi-colored components appear to be screaming to catch your attention. Forget your neighbors' clunky pasta maker, this is the kitchen device of the future, powered by a Jetsons-like carbonation booster.
Finally, what seems particularly pronounced to me is the fact that this machine was designed with a singular market in mind: the youth beverage market. Now, SodaStream's provided no reason to believe that's the case, so perhaps I'm off the mark. But, from my perspective, it could only be more clear if they co-branded the Play with Lego® and featured it in a sequel to the hit movie. I can see it now: "Lights, camera, bubbles! Coming soon to a theatre near you."
While I could be missing the bull's-eye for SodaStream's Play, here are five reasons I think their sights are squarely set on the next generation of soda sippers:
1. The name. Is this one too obvious? The word "play" conjures up fond memories of building sandcastles and shimmying up tree trunks. For kids, there's no better activity, and frankly, who doesn't have a positive association with play? As SodaStream's design firm describes it: "We have just added to the mix the idea of "Play," because playfulness, while doing what's right for oneself and for the planet, is simply contagious."
2. The simplicity. SodaStream often draws on the creative spark of the famous designer Yves Behar when it comes to launching a new machine. First, he developed the stripped-down Source; now, he's returned with an even sleeker version in the Play. The latter is all about customization and about freedom of choice when it comes to bottle size, flavors, or carbonation. What better way to unleash the creativity of consumers than to make it easy enough for the craftiest ones to tinker with? That's not to say kids should be on the countertop pumping bubbles, to be sure. But there's at least one soda mom who will attest to SodaStream's appeal to the entire family.
3. The timing. The Play is expected to debut this summer, and SodaStream's been busy unveiling one partnership after another ahead of the launch. Coincidentally, almost every tie-up is with a kid-friendly beverage brand, including Welch's, Ocean Spray, and Del Monte. Even more recently, SodaStream announced the launch of its own "better-for-you" flavors branded as SodaStream Free. Ironically, SodaStream's efforts seems like an attempt to separate itself from the very idea of "soda." This could be because of declining consumption trends of cola itself. On the flipside, it might also be SodaStream's attempt to establish street cred as a healthy, kid-friendly alternative to national brands.
4. The conversion factor. This one's a bit more complicated, as it underpins SodaStream's struggles to garner market share in the U.S. that resembles anything like that of European countries. National beverage companies have long recognized that converting a new customer to their product is quite difficult. What's easier, as The New York Times pointed out in a food industry expose, is to double-down on your current users with more marketing. And it works. If so-called "heavy users" boost their consumption habits, the result has the same impact on your bottom line. For SodaStream, however, the inverse is true, since brands like Coca-Cola and Pepsi already dominate the soda category. The task of changing the habits of a heavy Coke or Pepsi user is particularly challenging. But that's where the Play comes in. Focusing on the youth market pivots SodaStream away from potentially futile attempts to convert brand-loyal consumers. Kids, on the other hand, represent a more impressionable market. Their taste buds and allegiances are less fixated on national brands. So SodaStream hopes they're more receptive to what its trying to sell: a delicious, fun alternative to heavily sweetened colas.
5. The health aspect. Sugary soda consumption in America became a hot-button issue in recent years, especially with regard to children. One study from Yale University found that childhood obesity rates increase by 60% for every 8 ounces of sugary drinks consumed daily. In response, Pepsi and Coca-Cola have introduced healthier beverage options and even limited ad spending directed at youth markets. These steps, however, fall short of what SodaStream believes it can offer. With SodaStream Play, the user can customize virtually everything, from the flavor to the bubbles to the calories from sweeteners. Even the upcoming Keurig Cold device is unlikely to offer this level of personalization. And that could be a crucial shortcoming in the eyes of health-conscious households.
With SodaStream recently losing its effervescent allure in the American market, it's no surprise the company is trying to shake things up with a new product debut. Yet, considering its lackluster SuperBowl ad campaign and inventory issues during the fourth quarter, investors are probably wondering if management's focus should be elsewhere. Their concerns, in my opinion, are reasonable. It's not clear that SodaStream needs to add to its portfolio of countertop devices, which currently features at least eight high-quality soda makers.
All of this, however, leads me to believe that SodaStream expects a particularly impactful splash with the debut of the new Play line-up. At the end of the day, maybe the goal is larger than simply reigniting stagnant U.S. sales. Perhaps SodaStream sees this product launch as a chance to stake a claim to the next-generation cola lovers. After all, the same Yale study found that major beverage companies spent $600 million in advertising aimed at the youth market back in 2006. There's obviously a huge opportunity awaiting; the Play could determine whether SodaStream can make inroads in 2014.
Isaac Pino, CPA, owns shares of SodaStream. The Motley Fool recommends Coca-Cola, Keurig Green Mountain, PepsiCo, and SodaStream. The Motley Fool owns shares of PepsiCo and SodaStream and has the following options: long January 2016 $37 calls on Coca-Cola and short January 2016 $37 puts on Coca-Cola. 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.
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