PepsiCo enters the in-home beverage market with $3.2bn deal to buy SodaStream
In a note on the $3.2bn deal – which is expected to close by January 2019 - Wells Fargo managing director, equity research Bonnie Herzog said PepsiCo’s global footprint could boost SodaStream's distribution by giving it access to new markets, while access to PepsiCo's R&D and marketing muscle could help the brand develop new products and reach a wider audience.
It would also accelerate PepsiCo’s strategic shift “towards adding healthier options across its product mix and complement its growing water portfolio,” including its new sparkling water brand Bubly, and Drinkfinity, its personalized beverage system using ingredient pods with a reusable vessel, she said.
But she added, “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, remains weak.
“In short, we remain concerned about challenges facing PepsiCo’s core business.”
Euromonitor: The sustainability of SodaStream’s products also sets the company apart
Alexander Esposito, research analyst at Euromonitor International, added: “PepsiCo’s purchase of SodaStream is a logical continuation of the company’s plan to increase its offerings of products that respond to increasing demands for healthier, more sustainable beverages. Since SodaStream’s rebranding as a sparkling water company as opposed to a soda company, it has seen its poor performance reverse and sales have started to recover.
“The flavored, zero-calorie and unsweetened concentrates that now form the centerpiece of SodaStream’s offering fit in with consumer weariness of not only sugar content but also artificial sweeteners. The sustainability of SodaStream’s products also sets the company apart in the carbonated and flavored water categories since SodaStream users are able to avoid plastic bottles.
“Following this acquisition, notable things to watch for will be expansions to SodaStream’s flavor offering as well as possible new introductions that may respond to increasing demand for carbonated waters that include functional ingredients such as electrolytes and digestive aids.”
An inspired match?
According to Ramon Laguarta, CEO-Elect and President, at PepsiCo, SodaStream is “highly complementary and incremental to our business, adding to our growing water portfolio, while catalyzing our ability to offer personalized in-home beverage solutions around the world.”
PepsiCo chairman and CEO Indra Nooyi added: "PepsiCo and SodaStream are an inspired match. [SodaStream CEO] Daniel [Birnbaum] and his leadership team have built an extraordinary company that is offering consumers the ability to make great-tasting beverages while reducing the amount of waste generated.
"That focus is well-aligned with Performance with Purpose, our philosophy of making more nutritious products while limiting our environmental footprint. Together, we can advance our shared vision of a healthier, more-sustainable planet."
Our business is on fire... Speaking on SodaStream's Q2 earnings call on August 1, CEO Daniel Birnbaum said: "Our business was on fire during the second quarter as every key performance indicator posted strong gains, resulting in the most successful period in our company's history...
"Our three largest regions all grew in excess of 30% year-over-year with Western Europe up 33%, and the Americas and Asia both up 36%... Gas refill units grew 17% to an all-time record 9.7 million. Sparkling water maker units were up 22% to over 1 million and flavor unit sales increased 8% to 5.8 million. In the US, revenue increased 22% as sparkling water maker units accelerated up 66% year-over-year."
He added: "I strongly believe we are poised better than ever before to drive continued growth and increase shareholder value especially as SodaStream is a great alternative to single use plastic bottles which are now being revealed as a hazard not only to the environment but possibly also to human health."
For 2018, SodaStream is forecasting revenue to grow around 23% compared to 2017.
