Coca-Cola’s agreement to buy a 10 percent stake in Green Mountain Coffee Roasters Inc. (GMCR) and help market its new single-serve home soda appliance gives the device credibility even before it debuts later this year. That’s unwelcome news for SodaStream, the leader in at-home soda machines, which already is struggling to maintain the pace of its sales growth. It also may pressure SodaStream and PepsiCo Inc. (PEP) to partner up and counter the threat.
“Many will view this announcement as negative for SodaStream, but there is a small possibility that PepsiCo follows Coke’s lead and partners with SodaStream,” Bill Schmitz, an analyst at Deutsche Bank AG in Greenwich, Connecticut, wrote today in a note to clients. “It will be interesting to see if Green Mountain’s product, which relies on a chemical reaction, gains traction relative to SodaStream’s CO2-based solution.”
He has a hold rating for SodaStream.
PepsiCo and SodaStream spokesmen didn’t return telephone calls seeking comment on the speculation.
Still, that speculation spurred the largest rally in SodaStream’s shares in six months. The stock advanced 7.2 percent to $38.35 at the close in New York, the biggest gain since July 31. Waterbury, Vermont-based Green Mountain climbed 26 percent to $102.10. Coca-Cola rose 1.1 percent to $38.03.
SodaStream, based in Lod, Israel, has been working to maintain its growth in part with marketing that sets itself apart from bottled-beverage companies such as Coca-Cola. In 2012, it displayed a cage full of of bottles and cans near Coca-Cola’s Atlanta headquarters, accusing the company of clogging landfills. Last month it hired actress Scarlett Johansson as a spokeswoman, and her first ad for the company featured her touting the benefits of a SodaStream machine and apologizing to Coca-Cola and PepsiCo.
While the increased competition from Green Mountain and Coca-Cola will exacerbate SodaStream’s sales challenges in the U.S. in the next 18 months, it isn’t all bad news, said Jim Duffy, an analyst with Stifel Financial Corp. in Denver.
The deal also “provides some validation of the at-home cold-beverage category,” he said in an interview.
That’s a sentiment SodaStream echoed in a statement responding to Green Mountain’s deal with Coca-Cola.
The announcement is “further recognition that custom carbonation is the future of the $260 billion at-home carbonated beverage industry,” SodaStream said. “We are proud of the innovation we have brought to the category, and our leadership role is changing the way consumers around the world enjoy carbonated beverages today.”
For Coca-Cola, the opportunity with Green Mountain is relatively small, Mark Swartzberg, a Stifel analyst in New York, said yesterday in a note. He estimated annual sales could reach $500 million, a fraction of Coca-Cola’s $100 billion in retail sales for its global system dominated by bottles and cans.
“History may show that this transaction is the beginning of another major route to market for Coke,” he said. “But, we doubt it will.”
SodaStream shares had plunged since the New York Post reported July 9 that the company was struggling to attract buyout interest. PepsiCo, the world’s largest snack-food maker, denied on June 6 a report in the Israeli newspaper Calcalist that it was in talks to buy SodaStream for more than $2 billion, while Coca-Cola declined to comment on the same day after Globes daily said it would also bid for SodaStream.