SodaStream Looks to Flavored Waters as Consumers Shun Sugary Drinks

Home-soda-machine producer is also responding to expected Keurig competition.

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Employees at the SodaStream product at the factory in the West Bank (Reuters)
Credit: Reuters

SodaStream International of Israel, the top player in the home-soda-machine industry, is seeking to appeal to increasingly health-oriented consumers as Keurig Green Mountain is expected to launch competitive machines in the U.S. this year.

As U.S. demand for sweet soft drinks has declined, SodaStream in October cut its 2014 revenue and profit forecast and said it would close a controversial factory in the West Bank settlement of Ma’aleh Adumim. The plant had sparked calls for a boycott of its products.

At the same time, competition in the U.S. is heating up. Keurig’s cold-beverage system is being developed with help from Coca-Cola, which last year became Keurig’s largest shareholder when it bought a 16% stake.

“We are not about to relinquish our No. 1 position in the U.S. or anywhere. We are looking forward to healthy competition,” SodaStream Chief Executive Daniel Birnbaum said on the sidelines of a news conference to launch its new product line.

SodaStream, where revenue grew 30% a year on average since 2008, reaching $562.7 million in 2013, forecast a 9% drop in 2014.

Its stock on Nasdaq has fallen almost 60% since last April, when it hit a high for 2014 of $47.30, and is now trading at $19.90.

“I think we failed in 2014 because we didn’t identify quickly enough the change in the market,” Birnbaum said. “U.S. consumers don’t want better Coke; they want more interesting water.”

Demand for sparkling water is on the rise, with the U.S. market up 33% to nearly $1.5 billion in 2013. This trend continued in 2014, Birnbaum said.

In response, SodaStream is launching a line of flavored waters, some with no calories and others with added fiber and vitamins. It will also sell its first electric soda machine.

Birnbaum said the company’s $65 million annual marketing budget will be dedicated to this new line.

SodaStream is also expanding its partnership with PepsiCo and will begin selling capsules in New Jersey to make Pepsi and Sierra Mist sodas at home. The capsules are already sold in Florida.

The company is also in the process of closing the West Bank facility. It has received permits to bring in 100 Palestinian workers from that plant to a new factory in southern Israel.

Birnbaum said SodaStream was seeking to obtain more permits for Palestinian workers as they are needed.

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