Can You Make Better Soda at Home Than Coke or Pepsi?

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There's a cola war brewing, and it has nothing to do with Coca-Cola (KO) or PepsiCo (PEP).

The battle for brewing home-based pop is heating up now that bottled water magnate Primo Water (PRMW) is introducing its Flavorstation appliance to compete with SodaStream's (SODA) fast-growing system.

How easy is it to make carbonated beverages at home? Is it cheaper? Isn't soda bad for you?

You're probably going to like all three answers, but let's start at the beginning.

Birth of a Carbonated Movement

SodaStream is an Israeli company that has spent the past few years growing through Western Europe. Its market penetration in Sweden, for example, is now up to 25% of the Scandinavian country's households.

Despite its long overseas track record, SodaStream waited until last year to make an aggressive entry into the U.S. market. It landed a willing partner in Bed Bath & Beyond (BBBY), which not only agreed to feature the system and its soda flavors prominently in its home goods superstores but also became an important participant in SodaStream's CO2 cylinder exchange program.

CO2 cylinder what? SodaStream's starter kits retail for $100 and up for fancier models. The starter systems include the maker itself -- a compact manual appliance that doesn't require batteries or electricity -- a carbonator cylinder that fizzes up flat water, and a sample of various soft drink flavors.

The lightweight CO2 cylinders are good for roughly 60 liters of sparkling water. They typically retail for about $30, but you pay just $15 if you're exchanging a used carbonator. Dozens of varieties of syrups are available for roughly $6 each, and they're good for the equivalent of 33 cans of soda.

Making a soda is easy. Twist on a reusable bottle with a liter of water, tap the carbonation button that activates the CO2 cylinder until you hear a few buzzes, and you have seltzer. Then it's just a matter of pouring in the flavor of your choice, or just enjoying the sparkling water on its own or with a few drops of all-natural fruit essences.

Flavorstation works the same way, and its entry-level model starts at a compelling price point of $80. The rub with Flavorstation is that it's brand new. Home improvement chain Lowe's (LOW) is the only retailer currently stocking the Flavorstation, though you can order one directly from the company.

The Economy of Home Brews

Fresh soda does have taste advantages. CNBC's Jim Cramer challenged skeptical cohort Herb Greenberg to a blind taste test in May. SodaStream beat out name brand canned soft drinks all four times.
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Does it make financial sense? SodaStream's cost evaluation finds that a liter of sparkling water will set you back $0.25, a substantial discount relative to buying soda water at the store. The math is simple, since it's just the $15 carbonator refill divided by the 60 liters.

Obviously it costs more once you begin pouring in syrups, and that math breaks down to $0.25 a can. It's not the same kind of bargain, especially when compared to cheap supermarket brands. Buyers also have to factor in the initial purchase, though it does include a $30 carbonator and enough syrups and essences for several initial liters.

However, it's at this point where the other advantages of home-based beverages begin to make sense. There's no lugging cans or bottles from the store and storage allocations.

Eco-minded soda sippers will also appreciate the environmental benefits. A carbonator is good for the equivalent of 170 cans of soda. Between the greenhouse gas emissions during the production process and the landfills brimming with the vast majority of cans and bottles that don't get recycled, home pop is kind to one's carbon footprint.

To Your Health

There's no denying that soft drinks -- specifically non-diet sodas -- aren't good for you. The sugary and often caffeinated kicks may provide a near-term boost, but nutritionists generally prefer that folks scale back their soda consumption. Switching to fresh home-based sodas will help.

An eight-ounce serving of regular Coke or Pepsi is loaded with 100 calories, 27 grams of carbs, and 27 grams of sugar. The same-sized serving of SodaStream's cola is just a 34 calorie beverage with 9 grams of carbs and 9 grams of sugar. In other words, SodaStream's cola syrup is just a third as bad as brand name soda.

Flavorstation's nutritional information isn't as kind. An 8-ounce cola serving packs 55 calories, 14 grams of carbs, and 14 grams of sugar, but it's just roughly half as bad for you as Coke or Pepsi.

Pop Goes the Boom

During this week's quarterly earnings call, CEO Dan Birnbaum pointed out that there are now 400,000 active users of SodaStream's beverage makers in the United States.

He's not overly concerned by Flavorstation's threat, pointing out that the company has achieved 80% market share in European countries where it faces competition. SodaStream also continues to expand its retail distribution. Target (TGT) and Staples (SPLS) became the latest outlets to begin stocking SodaStream systems and flavors, and Staples also participates in the carbonator exchange program.

You don't need to recall Sweden's 25% market penetration to realize that this isn't a fad. Revenue grew 39% in SodaStream's latest quarter, and adjusted earnings more than doubled. The growth is there. The unit economics, convenience, environmental benefits, and nutritional advantages are there.

Choosing between SodaStream and Flavorstation is open for debate, but don't be surprised if you find yourself gifting -- or being gifted -- a home beverage system this holiday season.

Longtime Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article. The Motley Fool owns shares of PepsiCo and Coca-Cola. Motley Fool newsletter services have recommended buying shares of Staples, Bed Bath & Beyond, Lowe's, Coca-Cola, PepsiCo, and SodaStream International. Motley Fool newsletter services have also recommended writing covered calls in Lowe's and recommended creating a diagonal call position in PepsiCo.
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