PepsiCo said today that it will buy SodaStream, makers of the countertop carbonation system, for $3.2 billion. The move not only pushes the sugary drink giant further into the healthy beverage market, but it also moves the company into more of a hardware space, which opens up new lines of recurring revenue.
Soda sales have been on the decline in recent years, with Pepsi soda brands in particular struggling to rebound. On the contrary, sparkling water sales have surged, driven in large part by millennials and their quest for new flavors and healthier ingredients. To capitalize on this trend, Pepsi launched its own line of colorful sparkling waters earlier this year called Bubly which has actually experienced strong growth since launch.
But with the SodaStream purchase, PepsiCo is also getting into a hardware solution for beverages. In addition to selling the machine itself, SodaStream also sells replacement CO2 cartridges and a wide variety of flavor concentrates. Its numbers over the last year have been good, with second quarter year-over-year revenue increasing 31.3 percent to $171.5 million.
Pepsi already has a line of product that is similar to SodaStream’s. Though the drinks aren’t carbonated, the Drinkfinity system lets users flavor their own water with special pods that are popped on the tops of a proprietary bottle design.
The SodaStream deal is also reminiscent of the Keurig Kold device, which was a pod-based home soda maker that actually had Coca-Cola as a partner before fizzling out after just ten months on the market in 2015. Earlier this year Keurig Green Mountain bought the Dr Pepper Snapple Group for $18.7 billion, but so far there have been no rumblings of a resurrected Kold-type device.
I’m curious about the long-term prospects for this PepsiCo/Sodastream deal and the overall home carbonation market in general. I bought a SodaStream a long time ago and used it pretty religiously for about a year. Then as seltzer water became more popular and more available, it was just easier to grab a six-pack and keep them in the fridge rather than refilling bottles, keeping them cold, blasting air (loudly) into them and remembering to exchange empty CO2 canisters at my local drug store. Yes, I realize that I’m abandoning the more eco-friendliness of SodaStream’s re-usable components, but — actually I don’t have a rebuttal to that. I just want convenience.
Now there are even more seltzer brands offering a wider range flavors that are available just about anywhere I go in the day. Will seltzer’s ubiquity beat SodaStream’s refillability?