SodaStream Switches Focus From Soda to Sparkling Water

<b class="credit"></b>

SodaStream (SODA) is slumping as a platform for making flavored carbonated beverages, so the Israeli company is ready to hose its old image down. With soft drink consumption waning and sparkling water on the rise, SodaStream is changing the way it approaches its marketing strategy.

SodaStream revealed after last week's dreadful quarterly report that it's abandoning its "Your home soda factory" tagline. "Water made exciting" will be its new promotional message to consumers.

"American adults and parents in particular are increasingly restricting the home consumption of soda, as we hear millions of Americans stop bringing soda into their homes or dramatically reduce usage occasions," CEO Daniel Birnbaum explained during SodaStream's earnings call. "There is a radical shift toward water consumption."

Sparkling Smile

The trend away from sugary soft drinks isn't new. Beverage Digest reports that the sale of sodas in this country has fallen for nine consecutive years. Diet soft drinks used to buck the trend, but that low-cal niche has now suffered through three years of declines. Diet soda sales in the U.S. actually fell harder than those of their full-calorie peers last year.

We're still drinking, just not sugary carbonated beverages. SodaStream brought up data from Beverage Digest and marketing research firm Mintel that shows a 33 percent surge in the sparkling water category in this country last year, with flavored sparkling water sales soaring by 62 percent. Some may argue that soda is also flavored sparkling water, but the key difference here is that sodas are flavored with sugar, high fructose corn syrup or artificial sweeteners. Consumers are shying away from pop on fears of diabetes, childhood obesity and the potential health risks of artificial sweeteners.

SodaStream has known this all along. It's more popular in Europe than it is in the U.S., and most of those owners are using the beverage maker to simply fizz up drinking water. A whopping 70 percent of SodaStream's beverage volume worldwide is for sparkling water.

A Truce in the Cola War

The marketing emphasis should be evident in the coming months. Instead of taking jabs at Coca-Cola (KO) and PepsiCo (PEP) the way it has in the past two years of Super Bowl ads, we are likely to see SodaStream pitch the health and wellness benefits of fresh sparkling water.

It's not changing its name. There are decades of brand equity in the SodaStream moniker. However, it will emphasize the Stream and not the Soda in its packaging.

The impact could sting investors. Repositioning itself as primarily a maker of seltzer will hurt high-margin soda flavor sales, but we were already seeing that anyway. SodaStream posted sharp year-over-year declines in soda maker starter systems and syrups in its latest quarter. The one category that improved, naturally, was the CO2 refills. However, the new positioning could make parents less apprehensive about inviting SodaStream machines into their homes. Making sparkling water at home is cheaper and fresher than store-bought alternatives. There's also an environmental message for SodaStream to lean on in marketing in-home carbonation over bottled options.

It's a bold move for SodaStream, but after seeing sales and profitability move lower this year -- with a bleak outlook for the holiday quarter -- it's not as if it has much of a choice. SodaStream is still about getting busy with the fizzy. It's just redefining the fizz.

Motley Fool contributor Rick Munarriz owns shares of SodaStream. The Motley Fool recommends Coca-Cola, PepsiCo, and SodaStream. The Motley Fool owns shares of PepsiCo and SodaStream and has the following options: long January 2016 $37 calls on Coca-Cola and short January 2016 $37 puts on Coca-Cola. Try any of our Foolish newsletter services free for 30 days. Want a sweet deal? Check out our free report on our favorite high-yielding dividend stocks.