Getting Busy with the Fizzy

With more than a century of history in developing home carbonation beverage systems, SodaStream is still going strong and, after this year’s hugely successful IPO, is aiming to increase its market penetration across the world. CEO, Mr. Daniel Birnbaum, tells Simon Davies how SodaStream products have the potential to create a revolution in the beverage industry.

While it has a long history in some global markets, SodaStream is taking advantage of several consumer mega-trends to create a new momentum in its quest to see major market penetration across the globe. Its credentials as a convenient, cost-saving and healthy product, which is also environmentally friendly, have enabled the company to enter 25 new markets in the last three years, and this looks set to continue.

SodaStream was established in 1903, by London Gin Distillers, W&A Gilbey, producing an apparatus to enable the British upper classes and royalty to add sparkle to tap water. The 1920’s saw the product used in shops and restaurants, and flavoured concentrates to add to the carbonated water were introduced. “SodaStream only became a consumer product in the 1950’s,” Mr. Birnbaum elaborates. “From that time, the company was owned by corporations including Reckitt and Coleman, and Cadbury Schweppes, and ultimately it was acquired by its distributor in Israel, becoming an Israeli company in 1998. Finally, in December 2006, this distributor was acquired by a private equity group, which recruited me as CEO.

“It didn’t take very long for the new management to realise that SodaStream is a terrific story for the times, and is very relevant for what is going on in the world. The story resonates strongly and the world has changed in favour of the solution that we have. We are excited as we are seeing quite interesting growth traction right now, based on the fact that we are addressing consumer mega-trends.”

In November, 2010, SodaStream began trading publicly on the NASDAQ Global Select Market under the ticker symbol SODA. “The purpose of the IPO is to fund the growth that we are experiencing,” Mr. Birnbaum explains. “We are seeing high growth levels, and we have to finance the working capital that is necessary to support it, including the construction of a new factory in Israel. The IPO priced on the high end of the scale and was one of the most successful IPOs of the year. We priced at $20 and, because the demand was so strong, we increased the offering by 15 percent the day before going public. The stock jumped initially and has continued to perform well ever since.”

Home carbonation

SodaStream is essentially a home soda or beverage making system, in which tap water can be carbonated with pressurised carbon dioxide gas to make fresh, sparkling water. It can then be mixed with a range of flavoured syrups to provide a variety of carbonated beverages. “Our system has four product categories,” Mr. Birnbaum outlines. “First is the soda or beverage maker; second are the syrups, flavours or cordials; third is the carbon dioxide canister and its refills; and fourth is the reusable carbonation bottle, which comes in various forms, shapes and sizes – BPA-free plastic, glass and, in the future, aluminium.

“We have many varieties in each of these categories. We make more than 30 different soda makers, in different colours, materials, shapes and sizes. We have more than 100 flavours of syrup, including traditional flavours like cola, orange and lemon, and many with diet versions. We also have unique speciality flavours such as an energy drink, and exotic, tropical and natural flavours. Additionally, we have local flavours for each of our markets – ginger beer, Vimto and elderberry for the UK market, root beer for the Americans, and Chinotto in Italy, for example. We have a variety of sources of carbon dioxide – for example carbon dioxide from natural sources underground is now available in Germany.

“In terms of our facilities, we are trying to behave in an environmentally responsible way, so we are decentralising our manufacturing. Right now, we have manufacturing sites in 14 different locations. Our main manufacturing locations are in Israel and China, but we have smaller facilities that service the consumables in the US, Germany, Sweden, Holland, South Africa, New Zealand and Australia. We have 41 markets in the world, of which we have entered 26 in the last three years. SodaStream is now available in over 40,000 retail stores around the world.”

Brand ambassadors

“We have two types of markets,” Mr. Birnbaum points out. “There are 12 wholly-owned markets where we have our own teams on the ground, which tend to be more historically entrenched, such as the UK, Australia or South Africa, or more strategic, larger markets such as the US and Germany. Then, there are the distribution markets where we have appointed an exclusive distributor with long-term agreements. This is our growth model, so we are constantly seeking high-quality partners, in countries where we are not yet present, who understand, empathise with, and are excited about our mission.”

SodaStream’s marketing activities are often non-traditional, he continues: “We cannot undertake a television advertising campaign for 50 million dollars a year, so we are creative in our marketing. We cultivate what we call ‘brand ambassadors’ whether they are celebrities, consumers, journalists or bankers. They are people who see the product, try it and understand the benefits and how much sense it makes. We find that these people tell the story in a very credible way, and generate new users. This creates a viral effect, and we are cultivating that.

“We also have touch-points – we do in-store demonstrations, and let consumers touch the product – and we do quite a bit of PR to get the word out. We actually have celebrities coming to us, who have discovered the product and start talking about it, and from time to time we see ourselves being talked about on television, for example, in situations we have not arranged. In the US we have been featured on Dr. Oz, Martha Stewart, Good Morning America and the Today Show. On the popular show, Access Hollywood, Tori Spelling, a major celebrity in the US and promoter of health and wellness, revealed that she does not like drinking still water, but she makes her own carbonated water with SodaStream. We did not arrange that, but it reflects what is happening as the brand and category is gaining recognition.”

Delivering on mega-trends

Asked about SodaStream’s key strengths, Mr. Birnbaum enthuses: “The world has changed and so has SodaStream. It has become a lifestyle product – it looks very nice and we have won several awards for design – including the prestigious Red Dot award. Our soda makers are made from attractive materials, some including stainless steel, and they have very contemporary designs that you would be proud to have on your kitchen counter.

“We deliver on several important consumer mega-trends, some of which did not even exist 10 years ago. These include convenience – you do not have to carry all those bottles from the store, you don’t have to store them at home and you don’t have to dispose of the empties. Then there is the value. Consumers have always wanted to save money, and even more so after the economic crisis, so we offer the consumer an opportunity to save money, up to 70% or more on your beverage bill depending on what you drink, and in most cases the appliance will pay for itself within a matter of months.

“The third benefit is health and wellness, which is another mega-trend. Consumers are looking to live a healthier life, and we provide opportunities in this area. Many consumers find it is easier to drink carbonated water than still water for hydration. We also use better ingredients – we don’t use high fructose corn syrup, and we generally have less calories, carbohydrates and sugar. We also have all-natural varieties of syrups – we even have a flavour essence which is both zero calorie and natural, called ‘MyWater’ which is transparent but has a flavour, in fact, it is currently our number one flavour in the US.

“Fourth, environmentally, SodaStream is a dream, because our bottles are reusable. Each one of our bottles is tested to be able to produce about 50,000 litres of beverage – substituting 150,000 cans. This is an incredible environmental benefit. The mega-brands are trying to reduce their packaging, and, from time to time, they bring out a smaller cap, or a thinner can or bottle. From SodaStream’s perspective, that is not good enough. They reduce five or ten percent of the packaging, but are still left with all the transportation and recycling – it is much better to reduce than recycle.

“Finally, SodaStream is fun. In markets that we enter for the first time, SodaStream always brings a smile to people’s face when they hear the noise and see the magic of making the soda. It is fun for the whole family, and it is something that people can talk about with their guests.

“When you put the whole package together – the strengths of the brand, the story and the benefits – it has the makings of a revolution in it. It is not one benefit that trades off for the other – you get it all – and it is considered by many consumers to be a smart choice. They don’t have to do beverages the old way anymore – there is another way to do it – just by turning tap water into your favourite beverage in seconds, without all the negative aspects.”

Market penetration

SodaStream is continually developing its current products, as well as looking at potential new applications of its expertise. “We have recently introduced new features into our soda makers,” Mr. Birnbaum reports. “For example, we have two different models which use glass bottles, one of which, the Crystal, has recently received the Green Good Design Award. We have also just launched a product called the Fizz soda maker, which has the Fizz Chip, a proprietary component that provides a digital indication of how much carbon dioxide is being added to the beverage, as well as how much carbon dioxide is left in the carbonation cylinder. We are also developing lots of new flavours of syrups, especially in the healthy area. We have a range of clear, no colour flavours, which are pretty popular in the beverage industry these days, and we have a kids’ line, enhanced with vitamins, but with child-friendly flavours.

“We are also planning multiple introductions into new areas – for example, the office market is a very interesting market for us. We are also developing a project called SodaStream Inside, working on collaboration with other home appliances. For example, refrigerators already provide ice and water, so why not carbonated water or cola? These are things that we know how to do and we are working with various manufacturers in the world to develop them.

“However, we are not losing sight of the fact that we don’t have to go into new product categories in order to grow, because our penetration levels around the world are still relatively small. We do have markets where our penetration is more than 20 percent, such as Sweden, and in some other markets
we are between five and 10 percent, while in some important markets, like the US, we are just beginning. So, there is tremendous growth potential in just continuing to do what we are doing right now, to bring the solution to more and more households.

“We also strive to retain our users for life. It is not enough just to sell a soda maker to a household – we want to make sure that we have engaged the household and that they love using the product. There are all kinds of things we do to keep the user interested, primarily by having a lot of flavours available – fun flavours, surprising flavours and healthy flavours, etc. We also do limited editions from time to time, both flavours and machines. For example, in April 2010, we did a limited edition full product range with Karim Rashid, the designer, which was very successful. In the UK, it was sold at Harvey Nichols, in the US it was sold exclusively at Bloomingdales, and every market chose a high-end retailer to carry it. Another example is the SodaStream Eco, which is manufactured from recycled material, to make it even more eco-friendly. Everything in the product is recyclable, except for safety components.

“Moving forward, the strategy that we apply to secure household penetration has three components to it, and we are completely focused on those three components. One is having the right, relevant product; the second is demand creation, using marketing and branding vehicles; and the third is geographic expansion. We are looking at Latin American markets, as well as additional Asian markets. During the last year, we entered Taiwan and the Philippines, and we are now looking at the possibility of penetrating Japan. So, there is still a lot of runway that we have not yet used for our products,” he concludes enthusiastically.