SodaStream International (NASDAQ:SODA) is betting that a high-tech cocktail mixer can save the flailing brand.
According to Engadget , the maker of the countertop soda machine has teamed up with designer Yves Behar to produce a cloud-connected cocktail machine. The gadget, called the SodaStream Mix, combines the carbonation of other SodaStream machines with an interactive touchscreen that allows the user to cycle through drink recipes, which will be carbonated accordingly once the user adds the necessary ingredients. The machines also adjusts for viscosity, adding fizz depending on how thick a drink might be.
There is no word on the release date or a price for the machine, and SodaStream has not even commented publicly on the Mix so it may be some time before the public gets its hand on one. Still, this seems like a canny move for a company looking to regain its footing after its recent slide in North America.
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SodaStream is trading for just around $20 these days, down more than 70% from its peak in summer 2013. Sales declined last year as the company ran into capacity issues and misread demand in the U.S., shipping excessive inventory that had to be discounted, eroding profits.
However, management also identified a deeper problem with the company's brand proposition. Soda consumption is declining in the U.S. amid health and wellness concerns, and while the soda market is still huge, it's difficult for a start-up to grow in a declining market.
The company has chosen, instead, to rebrand around sparkling water and flavored sparkling water, which grew 33% to 62%, respectively, in the U.S. in 2013.
Focusing on the sparkling water market seems like a better fit for SodaStream than targeting soda. Soda drinkers, it seemed, were unwilling to trade in their favorite brands, like Coke or Pepsi, for SodaStream's equivalents, and the value proposition didn't quite add up as using SodaStream to make soda costs about the same as buying it from the grocery store.
Sparkling water, however, is cheaper to make with SodaStream, and there are no huge brands with beloved taste profiles that SodaStream is competing against.
Similarly, adult beverages could present a valuable niche for SodaStream as there is no competing product on the market with SodaStream's brand recognition. SodaStream is also still a small company at this point so even a modest sales volume from the Mix could be enough to move the needle in the right direction. Considering the competing Perlini Kit sells for $259, a $300 price point for the SodaStream Mix seems reasonable. And for a company that had just $511 million in sales last year, selling 200,000 SodaStream Mix units at $300 would mean an additional $60 million in sales, lifting revenue by more than 10%.
The demand for such a product isn't guaranteed, but with the launch of the Apple Watch coming soon, it's clear that the demand for such Internet of things devices is only growing. And considering the growth of hard liquor categories like whiskey recently, the demand for such cocktails, and likely devices for making them, is growing.
Finally, the Mix offers SodaStream a chance to get back the buzz it first had when it made a big marketing push in the U.S. a few years ago. Though the sparkling water angle could work, it's not likely to wow the consumer in the same way that the high-tech cocktail machine can.
SodaStream isn't abandoning soda either, but management seems to have realized that it needs to sell to all consumers who have a desire for carbonated drinks. Those may be soda drinkers, seltzer guzzlers, or cocktail sippers, and the company finally seems to have a plan to meet the needs of all of them.
We may learn more about the Mix when SodaStream reports first-quarter earnings next month. For now, look for signs of life in the sparkling water category as a sign of any SodaStream rebound.