Home Soda Makers: A Threat to C-Store CSD Sales?

SodaStream reportedly adding Walmart to its distribution network

AIRPORT CITY, Israel -- SodaStream International Ltd., which manufactures beverage carbonation systems, which enable consumers to convert tap water into carbonated soft drinks (CSDs) and sparkling water at home, recently reported record total revenues of $78.4 million for the third quarter of 2011.

The company's products are available at more than 50,000 retail stores in 42 countries around the world.

"Our third quarter operating performance was the highest ever in the history of the company for sales and profitability. This was led by exceptional growth in the Americas, where we sold 267,000 soda makers, growing our installed base through an expanding network of retail partners," said Daniel Birnbaum, CEO of Airport City, Israel-based SodaStream.

He added, "As we approach the holiday season in the U.S. we will leverage our increased distribution, along with heightened brand awareness, allocating greater resources to penetrate additional households and capitalize on this large market opportunity."

Home soda makers offer a highly differentiated and innovative solution to consumers of bottled and canned carbonated soft drinks and sparkling water, SodaStyeam says in its press statements. "Our products are environmentally friendly, cost effective, promote health and wellness and are customizable and fun to use. In addition, our products offer convenience by eliminating the need to carry bottles home from the supermarket, to store bottles at home or to regularly dispose of empty bottles."

Chicago investment firm William Blair & Co. LLC said last week that it expects further distribution gains for SodaStream in 2012, due to broader store rollouts at Target and Staples and the likely addition of Wal-Mart.

When it initiated coverage in late 2010, William Blair Analyst Jon Andersen said, "SodaStream enjoys a robust growth opportunity through rapid expansion of its home beverage carbonation systems in the United States and further household penetration in international markets. The value proposition of the system appears strong, the addressable market is large, and the company's razor/razorblade model underpins an attractive recurring revenue and profit opportunity, in our view," Andersen said.

"U.S. expansion should be a key growth driver," he added at the time. "The United States leads all markets in at-home soda intake, with annual total spending and per capita consumption of $62 billion and 142 liters, respectively, he said. Yet SodaStream soda makers are in just a fraction of domestic homes. Moreover, in part because of a chainwide rollout with Bed Bath & Beyond, SodaStream will more than triple–to 4,000–the number of U.S. retail 'doors' in which its products are offered during 2010, with the opportunity to double that number again over the next few years.