How SodaStream Is Bubbling Toward World Domination

Alamy SodaStream (SODA) isn’t getting any smaller.

The company behind the popular namesake beverage platform that turns tap water into sparkling soda posted another quarter of inspired growth last week. Revenue climbed 29 percent during the period, and SodaStream now sees sales climbing 30 percent for all of 2013.

The stock opened lower on the news, but that was largely on bottom-line concerns. SodaStream has been investing in its TV commercials, adding additional production to its global facilities, and buying up its distributors in Italy and Canada to have more control of its operations.

These are the kinds of moves that will trip up margins and earnings growth in the near term, but as far as consumers go, SodaStream has never been more popular.

How Sweet It Fizz

Home carbonation didn’t seem like a viable business model until SodaStream emerged on the global scene with a refreshed platform. There have been home-based soda makers before, and SodaStream itself has been in business for more than 100 years. If you look online, it’s not hard to find the company’s cheesy “get busy with the fizzy” commercial that aired in England more than 30 years ago.

However, it wasn’t until SodaStream brought in Dan Birnbaum as CEO in 2007 that things really started to get busy with the fizzy.

Birnbaum had been an executive at Nike (NKE), and at the footwear and apparel giant, branding is a major component of the overall strategy. So when he came on board, he didn’t just move to make the soda maker more efficient, he also wanted to make it more stylish. To turn SodaStream’s small appliance into something that wouldn’t end up collecting dust in the attic like other novelty products (we’re looking at you snow cone maker and Margaritaville margarita machine) it had to look good on the kitchen counter.

Beyond that, it was a matter of beefing up global distribution by getting its products sold in major retailers. A soda maker couldn’t succeed if it was a fringe product being sold at home expos or specialty shops. SodaStream was already booming in Europe when it was introduced domestically atBed Bath & Beyond (BBBY) in 2009. These days, you can find SodaStream starter kits, syrups, and even CO2 refills at department stores, office supply chains, and even consumer electronics superstores.

Another major factor in SodaStream’s success is that it teamed up with well-known brands to get their beverages sold as syrups. Kraft (KRFT) has offered up Kool-Aid, Country Time lemonade, and Crystal Light diet drinks. Campbell Soup (CPB) followed with its V-8 Fusion line. Kraft and Campbell had little to lose. Their beverages weren’t being consumed in carbonated form, and offering up the flavors alongside SodaStream’s in-house syrups would help them reach new audiences.

Pop Goes the World

A big surprise in the earning report was that sales in Western Europe soared 43 percent in its latest quarter. SodaStream’s been in Europe for a long time, and it’s finding consumer acceptance in some unlikely markets. More than 20 percent of the homes in Sweden, for example, have a SodaStream machine.

There are three other countries where the Israel-based SodaStream has penetrated more than 10 percent of the market. We’re still way behind that in the U.S., but that’s why SodaStream is ramping up its marketing efforts in the country with the largest soda consumption rate per resident.

SodaStream isn’t just hoping that its growing line of portable makers do the trick. Earlier this year, it teamed up with Samsung to roll out a refrigerator that dispenses carbonated water fueled by SodaStream’s carbonators. SodaStream is also exploring systems that offer up carbonated water right from the tap, but for now its emphasis remains on growing its reach with its popular namesake system.

SodaStream’s latest quarter finds it selling 27 percent more starter system kits than it did a year earlier, so the number of people exploring the simplicity and convenience of making soft drinks at home continues to grow. SodaStream has debunked the naysayers that thought the platform would be little more than a fad. Now it’s time to see if SodaStream can keep growing before potential competitors start to catch on about the viable market that didn’t seem feasible just a few years ago.

Motley Fool contributor Rick Munarriz owns shares of SodaStream. The Motley Fool recommends Bed Bath & Beyond, Nike, and SodaStream. The Motley Fool owns shares of Nike and SodaStream. Try any of our newsletter services free for 30 days.

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