PepsiCo has wasted little time making a bold strategic move in the wake of Chief Executive Officer Indra Nooyi announcing that she will step down on Oct. 3rd, with Ramon Laguarta taking over as CEO. The bottled beverage giant is stepping out of it comfort zone to acquire in-home beverage maker SodaStream for $3.2 billion to enhance Pepsi and its other billion-dollar brands.
SodaStream, which makes machines that use carbon dioxide and syrup pods to allow consumers to create carbonated beverages in reusable containers, offers an alternative beverage line and revenue potential. While the scrappy startup once mimicked soft drinks, as better-for-you trends have overtaken the beverage world the company has pivoted toward marketing its machines as makers of healthy seltzer waters.
Besides giving PepsiCo another fast-growing business to complement its existing brands such as Pepsi, Mountain Dew and Gatorade, SodaStream allows the company to decrease its usage of disposable plastic bottles, with sustainability being one of its key messages.
PepsiCo, for its part, saw an opportunity to add a significant brand to support Pepsi and its other flagship beverages. SodaStream also brings an innovative delivery method that helps diversify from its core carbonated soft drink focus and forges a future beyond non-refillable containers.
“Co-Creating the Perfect Soda”
PepsiCo has already been talking up its Pepsi Homemade line with SodaStream, “which allows everyone to co-create their perfect soda. Modern consumers want products that feel personalized and authentic. By making soda in your own kitchen, you craft a beverage that’s uniquely yours. And, the instant transformation of water to soda feels a little bit magical.”
“The Sodastream Caps allow you to customize your drinks with the perfect amount of flavor and carbonation. Authentic ingredients like real sugar and stevia provide a better-for-you soda that tastes great.”
The Pepsi Homemade collaboration with SodaStream also inspired a new design direction for Pepsi: “The design of Pepsi Homemade goes beyond creating the look and function of a product. It’s about designing an interaction that builds an authentic relationship with the consumer. It’s an important step in our mission to offer freedom and possibility in the ways that people experience our products.”
“The design language of the pods, bottles and packaging is clean, light and joyous. It’s based on two basic shapes: a drop and a circle. The Pepsi globe is referenced in graphic bubble silhouettes while the bottles have a subtle drop shape. The font of the Pepsi Homemade logo has a hand-scribbled, home-spun feel.”
“An Inspired Match”
Incoming PepsiCo CEO Laguarta, currently PepsiCo’s president, helped finalize the deal with SodaStream CEO Daniel Birnbaum. “PepsiCo and SodaStream are an inspired match,” Nooyi stated. “Daniel and his leadership team have built an extraordinary company that is offering consumers the ability to make great-tasting beverages while reducing the amount of waste generated. That focus is well aligned with Performance with Purpose, our philosophy of making more nutritious products while limiting our environmental footprint.”
In another sign of the boldness of this merger, SodaStream has been an outspoken critic of global beverage-makers—including PepsiCo—for producing bottled water with packaging it deems wasteful. “I’ll say it till I’m blue in the face,” Birnbaum said last year. “The bottled-water industry is the biggest marketing scam of all time.” Fortunately, the tough criticism didn’t hinder a deal.
Now it’s acquiring one of its biggest critics, PepsiCo is recognizing that sparkling water of all kinds has become a crucial source of growth. What’s more, SodaStream has an installed base of machines, its own distribution system—including a refillable carbonating cylinder model—and a growing presence in Europe and other non-US markets.
Plus, after a few years of trying to goose soft-drink sales with huge marketing promotions, the introduction of new forms of packaging and other investments, more recently PepsiCo’s beverage powerhouse has shifted more of its marketing efforts into its “better for you” brands and away from its traditional soda-based business line.
Even though Coca-Cola failed a few years ago with a big investment in a “Kold” soda-making machine via a minority stake in Keurig Green Mountain, PepsiCo now sees ways to expand SodaStream and “catalyz[e] our ability to offer personalized in-home beverage solutions around the world,” Laguarta stated.
And SodaStream’s results certainly show it’s onto a good thing. In its last quarterly earnings report as an independent company, its Western Europe sales were up 33% this year as the company continued to sell more and more of its sparkling water containers and gas refills. In fact, gas refill sales rose to $9.7 million its latest quarter, which was up 17%—a record high for the company. Now that it’s owned by PepsiCo, it’s bringing an extremely high-margin business to its once-rival. And it doesn’t need to move another Mountain to get there.