Commentary
Disruptive Innovation: Will Sodastream Do To Soft Drink Category What Nespresso Did To Coffee?
- by Dave Morgan , Featured Contributor, September 6, 2012
I love it when companies innovate new ways to deliver products, and services that can flip legacy business models, products and companies upside down. That's probably why I'm now running my
third tech start-up. Roiling markets is the only way to roll.
We just got a Sodastream machine. If you're not familiar with the Sodastream system, it's a carbon dioxide injection system
that lets you turn plain old tap water into refreshing sparkling water or any one of a multitude of flavored, sparking soft drinks. Basically, you fill a bottle with water, screw it into the device,
press a button to inject the fizz, add any one of a number of syrups or flavorings -- and, voila, you have a ready-made soft drink.
Like Gillette with its razor blades, Sodastream doesn't
just sell the machines, it sells the flavorings too, from diet cola to lemon-lime to orange soda to energy drink and virtually every other flavor you could imagine. Critically, it's very easy to use
-- nothing like the home bottling systems that were popular in the '50s and '60s. And, the flavorings are of very high quality.
What a great innovation. Soda when you need it. Very
low-cost. No heavy bottles to lug home from the supermarket. Mix and match and customize flavors. And, as is quite fashionable these days, it's very green, is all about recyclability and reeks of
sustainability.
What I wonder is whether Sodastream might do to the soda market what Nespresso did to the home coffee market. Just think about it. Launched at scale in only 1988,
Nespresso now does around $3 billion in annual sales and accounts for approximately one-third of the ground European coffee market. Further, its profit margins are reported to be the very highest in
the market.
Finally, what is so special about what Nespresso has achieved is that it sells its coffee pellets directly to consumers in most cases. No middlemen or distributors to eat into
profits, or independent retailers also pushing competitors' products. In the era of the Web, direct consumer access is so critical. It lets you "relationship-manage" your consumer marketing. I love
that Nespresso sends us free chocolates each year during the holiday season.
Should Coke and Pepsi be on their guard for Sodastream and its like? There was a day when Folgers and Maxwell
House were the only coffee brands that mattered in the U.S. Those days are long past. For Sodastream, picking up a point or two share of the soda market would make it a very big business. Loss of that
market by the Big Boys would come right out of their margin and bottom line.
I think Coke and Pepsi need to get in this game. If I were them, I would be marketing flavorings and syrup
directly to consumers. Fortunately, the Sodastream system isn't a "closed" system with patented pellets like Nespresso. So the Big Guys should play in this market -- or lose some market share to
innovators. Do you agree?
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I totally agree. We've had our Sodastream for a couple of years, and it's a superior solution: products + infrastructure, including pickup and dropoff of C02 canisters door to door. And as you say, the flavorings are first-rate: good enough to stand in for top-brand fizzies from the store, even for consumers very fixated on the particular taste of a given product (hear that, Diet Coke?)
Your idea of turning every yuppie household into a bottling plant is very strong, and the big brands should jump on it. So should smaller, boutique brands, like Stewarts, who, no doubt, have greater distribution and market access challenges due to smaller scale.
Right now, as you probably know, SodaStream is selling its machines online and mostly through higher-end housewares stores. But there's no intrinsic reason why supermarket chains shouldn't carry the sodamaker line, the flavor concentrates, and act as local distribution and redemption for the CO2 chargers as well. Overall, I'll bet that -- while net costs to the consumer are lower than with pre-made soft drinks -- margins on such an operation would be higher, and considerable shelf-space saved.
Hey David, I read your commentary avidly as it's always insightful, but you've got me a little flummoxed on this one. We had a sodastream in the 80's as a child in the UK, it's synonymous with prawn cocktails, pina coladas and backcombed hair as a cultural zeitgeist. I loved it and it still has a special place in my heart, in fact you posting about it, reminds me I have to go and buy one so that my children can experience it, but disruptive innovation? http://www.guardian.co.uk/lifeandstyle/wordofmouth/2010/jul/19/fizzy-drinks-sodastream
Do you think the need for soda is as great as the need for coffee ? Perhaps a proportional push will be more prudent.
I can't escape the fear that they taste like store brand cola, or Fanta.
How many units have they sold? While I think its a nice innovation, I don't think it will catch on too make enough as a marketshare buster. If the majors decided to get involved and build a competitive product it would only prove the model, yes the consumer would win, but the soda companies are only competing against themselves and now exchanging high margin customers for lower ones.
Personally the way I go, to really save and stay even more healthy is to buy a conventional old style Co2 soda water maker and add high concentrate pure fruit, ginger, cherry, lemon lime, etc. Prove positive, cola products are absolute crap for the body.
I love my sodastream. Love it. I bought it after I torqued my elbow lugging home too many bottles of club soda from the market. Many weeks of physical therapy later, I purchased the sodastream. I don't drink soda, either sugared or sugar-free. Just carbonated water.
I buy the refill carts. at Bed Bath & Beyond, using their coupons and fill the device from my kitchen sink filter.
Did I mention how much I love my sodastream?
lol somehow i dont think coke or pepsi are shaking in their boots. sodastream has been around since the 80's (though is being pimped by the financials at the moment as a stock of the day darling for a pump and dump so getting lots of press over the last 6 months).
considering coke&pepsi are still around 20 years later.......i think their business model is doing just fine.
Agree. Haven't had sodastream yet but it's smart. And I'll consider it when they have ginger beer or if they don't use high fructose corn syrup in their syrups.
Besides, like home brewing, it's chic.
They don't use high frutose in their syrups, but most of u are missing the point. Their CEO has only been with the company since 2007, which by that time they were only in select regions, now sodastream is available everywhere, and getting bigger and other brands are starting to notice and making co-branding deals like the most recent one with Kraft foods and soon more will follow, sodastream just got in the U.S. about a year ago in selectc
Stores, it will now be on waltmart stores across the U.S. it's a smart choice but for those of you that dont drink soda regularly don't comment cuz obviously is not for you, but for the other 80% that do, it would save u a fortune, no electricity required, far less waste, is green, it has style, its small and is inexpensive. Now let's talk about quarterly earnings which has been killing analys for the past 4 quarters, which future growth clocked in at 55% year over year. If this doesn't sound good too you, am sure this will. Did you know that the U.S. accounts for just 20% of their revenues? and that it's only been here for a year or so? and if you have any doubt about residual income think again, is not the machine that they make the most income from is it's syrups that are the driving force behind this company wich means once you buy the machine u will use it regularly
I think Sodastream has exposed these key opportunity. I believe that a market incumbent, particularly a craft soda-focused could make real headway here. It is what Sodatream could become. The brand and flavoring ate the software and the bottling is the hardware. It's time for soda brands to act like Apple and control the integrated package, and not just in mass bottling.
I buy fruit-based mixes and add Perrier -- voila, soda.