MarketLine Blog

SodaStream: Why it could have been a great buy for Coca-Cola or Pepsi

Although the rumors of a potential acquisition of SodaStream International Ltd. (SodaStream) by PepsiCo, Inc. (Pepsi) have recently been denied, the company remains a threat to both Pepsi and fellow soda incumbent The Coca-Cola Company (Coca-Cola). Crucially, it still has the potential to further disrupt the soda market through its challenge to traditional distribution models and enhancing consumer choice. However, the company’s razor/razorblade business model remains at odds with its competitors’, and would not have played well into either Pepsi or Coca-Cola’s long-term strategy.

SodaStream’s focus on the environmentally friendly nature of its product has meant that it has been able to effectively challenge the notion of the traditional soda market’s distribution channel. This is clearly a key aspect of the company’s strategy, and is wholly evident in its marketing and advertising campaigns. Its key differentiator has now become more than just a novelty: it is being billed as a means for consumers to consume soda in an environmentally friendly way, lessening the impact of plastic bottles. This is an area that Coca-Cola and Pepsi have started to target in the face of criticism and waning soda sales in the US. Furthermore, SodaStream’s emphasis on the level of choice between different flavors and types of soda available through its machines has meant that the company has been able to promote itself as a healthier alternative to traditional soda.

However, SodaStream employs a razor/razorblade business model, whereby profitability is bolstered by the on-going sales of higher margin consumable products subsequent to the initial sale of its soda making machines. This is at odds with both Pepsi and Coca-Cola’s business models and more traditional strategies, which will have put both companies off any potential attempts at acquisition.

Nevertheless, SodaStream’s business model is serving it well: the company has experienced a dramatic surge in revenues since its re-launch in the UK in 2010, and the lucrative Americas market now accounts for over a third of its turnover. In addition to this, the company’s bottom line has also been expanding, and its net profit margin has increased dramatically since 2008 as sales of consumables continue to grow.

Although the Israeli company’s recent success remains merely a drop in the ocean compared to Pepsi and Coca-Cola’s gigantic turnover figures, SodaStream remains a threat to both incumbents. In fact, acquiring SodaStream while it is still relatively small could have been an astute damage control measure for either company at the optimum cost.

As it stands, SodaStream still has huge growth potential, especially in the US, and it will be interesting to see if either Coca-Cola or Pepsi regret not snapping it up in a few years’ time.

Read more on SodaStream’s recent success in the MarketLine Case Study, SodaStream International Ltd.: Shaking up the US soda market.

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