SodaStream (SODA, Financial) recently reported mixed results because of weakness in the U.S. Its performance was driven by strong gains in several markets, led by Germany. SodaStream’s marketing campaign that highlights the ease and convenience of enjoying carbonated beverages made at home is fueling demand for soda makers and usage rate throughout the region continues to increase which is a great indicator of the viability of its system as the company has been operating in some of these countries for over 20 years. There’s an encouraging momentum in Western Europe.
SodaStream’s performance was generally in line with its expectations with strong growth in three of its four regions. The gas refill units increased 22% to a record 5.8 million for the quarter and flavor units jumped 9% to 8.4 million, while soda maker units declined 22% to 604,000. In the U.S., soda maker units decreased 69% to 80,000 and flavor units declined 20% to 2.7 million while gas refill units increased 27% to a record 1.4 million.
There was an encouraging sell out of the soda machines during the quarter which is a better indicator of consumer demand. According to NPD, soda maker sell out was down 19% and flavor sell out was down 6% while gas refills increased 47%.
Some positive points
There are some healthy highlights that underscore the health of its brand and the attractiveness of its home carbonation system. And SodaStream is believed to be taking the necessary actions to reinvigorate the U.S. business with a focus on reaccelerating soda maker growth and increasing household penetration.
The revenue for the Asia Pacific region increased 28% compared to last year, driven primarily by another strong performance in Australia a market in which SodaStream has been operating for many years. The sales of soda makers, gas refills and flavors all increased into the double-digits driven by strong execution at retail and against the consumer. Japan is a new business opportunity for the drink maker in Asia Pacific and the market dynamics is believed to fit incredibly well with its consumer benefits of customization, convenience and health and wellness.
SodaStream acquired the assets of its former distributor in Japan and began direct distribution starting April 1.
The revenue for CEMEA increased 34% from last year, ahead of its internal plans. After a difficult macroeconomic situation, the consumer environment has stabilized and is beginning to show signs of improvement. The sales of soda makers have accelerated over the past few months and inventory levels are now more aligned with demand.
The continued growth of its Israeli business also contributed to the region's outperformance in the quarter. Its business outside of the U.S. which represented 70% of revenue continues to perform well as evidenced by the 19% growth. The company’s product and demand creation strategies are believed to be working effectively and will continue to deliver increased household penetration and improved consumer loyalty in Western Europe, Asia Pacific and CEMEA.
The opportunity
SodaStream is changing century-old consumption habits to a degree no other company has been able to achieve in the U.S. This is believed to be a great recipe for success by expanding the business and taking the brand and the category to the next level in the Americas.
SodaStream’s core consumers remain very active and passionate about its brand due to its successful strategy of delivering multiple consumer benefits that are in line with some of today’s most relevant mega trends as illustrated by a recent survey from January 2014 tells which shows that 77% of consumers who use a SodaStream are using at least three to four times per week with 55% of those using it at least once per day, and 70% are using its flavors.
The double digit increase in unaided brand awareness to 40% with aided awareness very high at 84% illustrates that SodaStream has a tremendous opportunity to sharpen its position and consumer messaging to convert that high awareness into purchases which will ensure its continued leadership of the burgeoning home carbonation category.
The brand has built a strong presence in over 17,000 retail doors in the U.S. that spans high end specialty to mass market. This shows the strong presence of SodaStream in the beverage market and something it can better leverage going forward. Retailers remain excited about the new incremental revenue and profit opportunities that the company is creating in home carbonation and continue to embrace the attractiveness of its razor blade business model.
A strong pipeline
SodaStream’s product line up is incredibly strong with the variety of soda makers at different price points. There’s also an exciting product pipeline which features innovative new soda makers and flavors including single serve delivery options and new partnership agreements with Welch's, Sunny D, Skinny Girl and many more.
SodaStream is also strengthening its partnerships with other brands that utilize its carbonators in addition to expanding its household penetration and will drive further growth into its gas refill business.
The expansion of Samsung to two additional refrigerator models and SodaStream’s collaboration with KitchenAid along with its flavor partnerships strengthen SodaStream’s position as the platform of choice for the home carbonation category.
Conclusion
SodaStream is seeing positive momentum in the business. Although sales in the U.S. were down last quarter, the company should continue improving and get better going forward.
