Where SodaStream Has Gone Flat

Where SodaStream Has Gone Flat

As summer winds down, I've felt compelled to indulge, just a little more, in some favorite summer cocktails. Sure, autumn brings thoughts of Octoberfest and pumpkin beer, but it's not quite the same as nursing a cool drink through a lazy, summer afternoon.

While mixing one of these drinks the other day, I noticed a lonely SodaStream . I wondered how I could use it to improve upon my measly mixologist skills — to make it more useful behind my bar than the dusty muddler which has gone unused for the past ten years.

Apparently, I wasn't the first to concoct this idea. If you search SodaStream's international websites, you'll find that the company does offer flavors for the adult crowd. In Australia, Cuba Libre and Caipirinha flavored syrups are available; meanwhile, in the United Kingdom, Mojito, Cosmopolitan, and Margarita flavors are available. Why are we Americans being neglected? There is certainly a growing trend toward spirits in the U.S. According to a Demeter Group Investment Bank report, spirits are gaining U.S. market share at the expense of beer -- Vodka is leading the charge, rising at more than a 5.2% CAGR since 2005.

SodaStream with a twist
SodaStream could simply bring their "cocktail syrups" from the international market to the domestic market, or they could proceed by partnering with an established company in the space. SodaStream has already demonstrated an impressive ability to forge partnerships and offer popular brands like Kool-Aid, Crystal Light, Country Time, and Ocean Spray. Undoubtedly, these partnerships and increased product offerings are largely responsible for the 28% increase in the consumables segment for the second quarter as compared to the same period last year. Growth in this segment is crucial for the company, which operates in a "razor and blades" model. In other words, the 25% increase in revenue from the Soda Maker Starter Kits segment is an encouraging sign for investors, but it means nothing if the consumers are not making use of their soda makers and continuing to purchase CO2 refills and flavoring syrups.

Possible mixers
SodaStream could proceed by working with wine and spirits industry leader Diageo . This would be in line with Diageo's efforts at improving in the North American market — an effort that yielded a 5% increase in net sales and a 9% increase in operating profit for the last quarter. It would also address the company's emphasis on innovation. According to the company's website, "Product innovation allows us to access key growth trends through premiumising our brands, unlocking growth in developed markets, providing premium products at affordable prices to tap into the new middle class consumers and reaching the underserved female consumer."

The Demeter Group report found that Diageo's Smirnoff brand is the industry leader at more than twice the size of the second largest Vodka brand. Diageo offers a diverse range of Smirnoff products — some of which would make excellent SodaStream flavors, like Vodka Mojito and Grand Cosmopolitan. Branded with the Smirnoff label, SodaStream could also provide these flavor offerings at a higher price point. Ketel One and Croc are two other immensely popular Vodka brands in Diageo's portfolio — brands that could also be marketed with SodaStream flavors.

If not Vodka, then perhaps Rum. Another winning brand for the company is Captain Morgan Parrot Bay, the fourth largest growing spirit brand in 2012. Like it does in the Australian and U.K. markets, SodaStream could offer Cuba Libres, Caipirinhas, and Mojitos flavored syrups. These could be marketed with Smirnoff, Captain Morgan Parrot Bay, and/or some other Diageo brand.

Beam (NYSE: BEAM) is another possible partner. A partnership would surely help the company meet its goal of 25% long-term sales growth from innovation. Beam's Pinnacle Vodka is the fifth largest growing spirit brand, rising 62% in 2012. Beam also has a valuable brand in Skinnygirl, which was the seventh largest growing brand in 2012. Created by television star Bethenny Frankel, Skinnygirl began as a ready-to-serve Margarita product. Having grown in popularity, the Skinnygirl line now features Sangria, White Cranberry Cosmo, and White Peach Margarita, to name a few.

Bottoms up
Teaming up with Diageo or Beam seems like a logical evolution in SodaStream's already impressive growth story. Partnerships aside, industry leaders Diageo and Beam both offer convincing arguments for investment, as spirits continue to rise in popularity in the U.S.

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The article Where SodaStream Has Gone Flat originally appeared on Fool.com.

Scott Levine owns shares of SodaStream. The Motley Fool recommends Beam and SodaStream. The Motley Fool owns shares of SodaStream. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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