Plunging sales, a growing consumer trend of avoiding its primary product, and a controversially sited bottling plant can't be reversed by a simple 10-week test run of Pepsi beverages in the Florida market.
This wasn't like Coca-Cola (NYSE:KO) investing $2 billion in Keurig Green Mountain (NASDAQ:GMCR.DL) to develop a line of at-home soda-making machines. Instead, this is a tentative toe in the market to see what, if any interest, exists. That's not a commitment any investor should be fooled in thinking it represents salvation.
Here are four reasons why Pepsi can't save SodaStream.
1. It's not much of a partnership
There's always been some hope someone would partner with SodaStream to develop a new system, and a lot of the rumors swirled around Starbucks (NASDAQ:SBUX) possibly taking a minority position in the DIY beverage company just like Coke did with Keurig. But once the java slinger announced its intention to launch its own line of handcrafted carbonated beverages, there seemed little reason to suspect it would hook up with what was quickly on its way to becoming an also-ran in the industry.
The Pepsi agreement is certainly better than nothing, and continues to validate the home beverage niche, but with SodaStream unable to move product on its own, even with a number of name brand flavors attached to it already, there seems no reason to suspect this will move the needle either.
2. Sales are falling despite portfolio branded partnerships
Sales last quarter tumbled once again, falling 13% from the year ago quarter, as starter kit revenues dropped 32% and flavoring sales fell 8%. Although CO2 cartridges remained positive, rising 10% from last year, that was down sharply from the 34% increase it enjoyed in 2013 and is the fifth consecutive quarter of falling revenues for what some view as its strongest asset.
This comes despite already having a number of well-known brand name product partnerships, including Campbell Soup's (NYSE:CPB) line of V8 drinks; Kraft (NASDAQ:KRFT.DL) drink mixes like Kool-Aid, Crystal Lite, and Country Time; and Ocean Spray cranberry juices.
3. Soda is a losing battle
Consumers just aren't drinking soda anymore and both soda giants report falling volumes, with an even more precipitous drop occurring in diet soda as concerns over their unnatural ingredients, like artificial sweeteners, rise.
The market researchers at Euromonitor say carbonated cola volumes in the U.S. have tumbled from 28 billion liters in 2009 to 24.7 billion liters in 2013. That ought to play into SodaStream's wheelhouse with its more natural ingredients, but even it realizes it's a war it can't win.
4. SodaStream is diverting its resources away from soda to focus on water
SodaStream's CEO, who previously called the product consistency offered by Coke and Pepsi a "trap," now admits his company can't produce a product of the same quality of either soda giant. As a result, it will turn to the flavored water segment and minimize soda's role in its future.
As BloombergBusinessweek notes, that means there will be a new company tag line, too. No longer will SodaStream be the company to "set the bubbles free," but instead will be one where it's "water made exciting." So not even SodaStream has its heart in the Pepsi challenge, but considering the vast resources established players in the water market already have, being a water-centric player won't be easy either.
Coca-Cola, for example, reported volumes in both water and energy drinks jumped 7% in the still beverages segment last quarter while global volumes of sparkling beverages, which includes carbonated water drinks, was up 1%.
SodaStream is ultimately a niche player in a niche market
Using a SodaStream machine to simply carbonate your water, which seems to be what its customers really choose to do, hardly seems like a roadmap for growth. With Pepsi stressing the limited nature of its test-run with the DIY soda expert -- and pointing out it has many such test partners -- there's little reason to hope this will grow into something more.
The at-home beverage maker does need to do something to reverse the course it's on, and it has even bowed to the pressure of critics over its bottling plant in the occupied territories of Palestine and announced it will close the facility next year.
None of this though will be enough to make SodaStream a growth company, and while it's possible for the PepsiCo deal to grow into something more, like the dreams of a big name partnership that never materialized, this too will likely burst investors' bubbles.