SodaStream International (NASDAQ:SODA) has had more than its fair share of problems lately as sales have tumbled and profits have fallen along with it. Over the last two years, the once high-flying stock has slid nearly 75% from its peak two years ago, going from a promising growth story to a company on the wrong side of a fad.
Now, SodaStream faces a new threat from rival Keurig Green Mountain (UNKNOWN:GMCR.DL). The company best known for making single-serve K-cup coffee brewers is coming out with soda-dispensing machine known as the Keurig Kold. The Kold hasn't hit the market yet, but Keurig has teamed up with Coca-Cola to create what could be the transformational beverage machine that SodaStream had hoped to produce.
The Kold, which consumers can begin ordering this summer, will have several important differences form the SodaStream. It will automatically chill beverages to 39 degrees, does not require a CO2 canister, relying instead on single-use carbonated pods, and its branded partnerships will allow flavors from Coca-Cola and Dr. Pepper Snapple. However, those additional features won't come cheap as the Keurig Kold will cost anywhere from $299 to $369, compared to a starting price of just $79 for the basic SodaStream model.
Though the Kold would seem to present a formidable threat to SodaStream, CEO Daniel Birnbaum said his company is not at risk from the new entrant. Here are several reasons why SodaStream shouldn't sweat any challenge from Keurig Kold.
1. Most SodaStream drinkers don't want soda
Though SodaStream originally marketed its device for soda, selling a wide range of flavors along with exchangeable CO2 canisters, most customers have actually been using them to make seltzer. About 60% of SodaStream users use the device only to make carbonated water, while only 7% use it exclusively for soda. The Keurig Kold, on the other hand, is intended almost exclusively for soda consumption as its reliance on pods means that the user will have to purchase some kind of flavored pod to make a beverage. Though some may use it for flavored sparkling water, its primary intention is for drinks like Coca-Cola. With SodaStream's increasing emphasis on sparkling water rather than soda, this seems to be an important differentiating factor.
2. Sticker shock
Not only are the Keurig Kold machines considerably more expensive than the SodaStream base unit, but the cost of Keurig pods also means that the average sipper will spend more for a taste of the Kold compared to a SodaStream fizzy beverage. Keurig will retail the pods, which produce just 8 oz. of soda, for $0.99 to $1.29. A comparable serving from SodaStream, on the other hand, costs just about $0.17, with $0.06 of that going to the carbonation and about $0.11 for the flavor. The difference is huge and one that will likely make consumers question the value of Keurig Kold, especially as some analysts have noted that drinks from a SodaStream are not necessarily cheaper than buying soda in bulk at the supermarket.
3. SodaStream is moving away from imitation flavors
As part of its rebranding process, SodaStream is distancing itself from imitation flavors such as Dr. Pete, which is meant to resemble Dr. Pepper, and instead creating more original flavors intended to be new to consumers. In August, SodaStream will release 50 new flavors in five categories: fruits, zero-calorie, vitamin-infused plus line, flavored essence, and sparkling gourmet, all of which will be exclusive to SodaStream.
Birnbaum believes that many of the company's strategic challenges came from trying to position itself as an alternative to Coke and Pepsi. With the new flavors, SodaStream is clearly aiming at creating its own category, leaving Keurig with its Coke partnerships to take advantage of the loyal soda drinkers.
The launch of the Keurig Kold isn't the only indication that the two beverage companies are increasingly beginning to resemble one another. SodaStream also plans to intrude on to the Keurig's turf with its Ultimate machine, currently under development, which will be able to produce both hot and cold beverages and in multiple servings. Considering that Keurig is the much larger of the two, the Ultimate could pose a much larger threat to Keurig than the Kold does to SodaStream. Still, we won't know that until at least next year as the Ultimate is still just in its early stages of development.
Jeremy Bowman owns shares of Apple and SodaStream. The Motley Fool recommends Apple, Coca-Cola, Keurig Green Mountain, and SodaStream. The Motley Fool owns shares of Apple 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.