PepsiCo's Move For SodaStream Puts Spotlight Back On Home Soft Drinks Market: Analysis

By Steve Wynne-Jones
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PepsiCo's Move For SodaStream Puts Spotlight Back On Home Soft Drinks Market: Analysis

PepsiCo has said that its acquisition of household drink-machine maker SodaStream for $3.2 billion is another step in its bid to "promoting health and wellness through environmentally friendly, cost-effective and fun-to-use beverage solutions."

But the notion of creating soft drinks at home has had limited success. Over the years, many users have used Sodastream only for making fizzy water, without the flavoured syrups it sells.

Coca-Cola and Keurig Green Mountain forged a partnership in 2015 to market a counter-top cold-drinks machine, but pulled the plug the following year after it failed to take off.

It also remains to be seen what Keurig Dr Pepper will do in the space.

The company was created last month by the merger of Keurig Green Mountain, now owned by private investment firm JAB Holding, and Dr Pepper Snapple.


Analyst Viewpoint

In a briefing note, Bonnie Herzog of Wells Fargo said that PepsiCo's "large global footprint will likely provide Sodastream with access to new markets & stepped-up marketing/R&D spend.

"That said, we can’t help but see parallels to Coca-Cola’s decision to acquire a stake in Green Mountain in 2014, and question whether this deal – which also brings together a large consumer packaged goods company and an in-home beverage maker – will do much to solve PepsiCo’s ongoing struggle to improve volumes in its North American Beverage segment (which, despite sequentially improving in Q2, remain weak).

"In short, we remain concerned about challenges facing PEP’s core business – and, as such, continue to see limited upside for PepsiCo."

Shares Jump

Speculation about PepsiCo or Coca-Cola buying Sodastream has bubbled for years. The company had marketed itself as a more environmentally friendly alternative to mainstream bottled drinks and therefore a threat to the giant producers.


SodaStream's shares have jumped 85 percent this year after a 78 percent increase in 2017 and have moved to $130 from $16.31 at the end of 2015.

In second-quarter results issued earlier in August, SodaStream's revenue grew 31 percent to $171.5 million, driven by growth in Germany, France, Canada and the United States, while net profit rose nearly 82 percent.

The company was acquired by Soda-Club in Israel in 1998 before Private equity group Fortissimo Capital bought a controlling stake in 2007 and the company went public on Nasdaq in 2010.

PepsiCo said its strong global distribution capabilities would position SodaStream for further expansion.


Israel Issues

SodaStream was in the spotlight several years ago when critics called for a boycott over a factory it had in the West Bank, despite employing many Palestinians. It has since closed that factory and relocated to a much larger facility in southern Israel.

But Pepsi is no stranger to Israeli firms. It already has a joint venture with Israeli foodmaker Strauss Group called Sabra Salads to sell hummus and other dips and spreads in the United States.

SodaStream's Israel-listed shares will be halted for trading until its Nasdaq-listed stock opens later on Monday, the Tel Aviv Stock Exchange said in a statement.

News by Reuters, edited by ESM. Additional reporting by Stephen Wynne-Jones. Click subscribe to sign up to ESM: European Supermarket Magazine.

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