|New products on tap from SodaStream emphasize natural ingredients and functional benefits.|
AIRPORT CITY, ISRAEL — Even SodaStream International is trying to cut out soda.
The maker of home beverage systems is repositioning itself as a sparkling water company, after sales of machines and flavors continued to fizzle during the third quarter.
“The market opportunity in front of us is tremendous,” said Daniel Birnbaum, chief executive officer, during an Oct. 29 call with financial analysts to discuss third-quarter performance. “The $200 billion carbonated soft drink market is going through a rapid transformation, led by the United States, where consumers are abandoning traditional soda for more natural, less caloric, water-based beverages with the mega trend shift toward health and wellness. We see the leading soft drink companies all searching and experimenting with solutions to offset the declining consumer demands for traditional C.S.D.s. We’re in a unique position to capitalize on this transformation and play a pivotal role in the future of the beverage industry.”
Following seven years of consistent double-digit growth, sales have slowed significantly for SodaStream. Net income for the third quarter ended Sept. 30 declined to $20,485,000, equal to 98c per share on the common stock, down from $41,346,000, or $1.99 per share, in the comparable period. Revenue totaled $385,248,000, down from $394,613,000 in the previous year’s third quarter.
Challenging selling conditions persisted in the United States, while performance in international markets was mixed, reflecting strength in company-operated markets of Germany, Australia, Canada and Switzerland offset by declines in France and the Czech Republic, which are distributor markets.
To restore profitability, SodaStream announced a five-prong growth plan for next year, which will include new products, new distribution channels, corporate restructuring, plant consolidation and a brand overhaul.
First, SodaStream aims to strengthen its leadership team and reorganize its operational structure. The company will expand the board of directors, install new talent at the top, reduce headcount by about 10% in operations and reshuffle business units.
“This includes establishing a new centralized commercial leadership team that will lead the expansion of our distribution, our account management and in-store execution, expand our e-commerce business and in the short term, oversee the transition to next-generation products,” Mr. Birnbaum said. “In addition, we are repositioning our market teams into regional clusters to take better advantage of our most experienced managers to drive more consistent performance across regions. As part of our initiatives to improve profitability and optimize working capital, we are expanding our new procurement units to become a global one reporting directly to me.”
The second pillar of SodaStream’s plan focuses on marketing, underpinned by efforts to realign the brand with health and wellness.
“Going forward we’ll be emphasizing our marketing position as a leading sparkling water company, supported by an offering of better-for-you water enhanced beverages under the SodaStream brand,” Mr. Birnbaum said. “We will no longer be selling soda makers but sparkling water makers. And our flavors will no longer be sold amidst the syrups, but rather sparkling water flavors. This new positioning is a dramatic shift from our previous positioning as a smart alternative to traditional soda.”
Along with a new Water Made Exciting campaign comes a redesigned logo that emphasizes a shift from “soda” to “stream.”
“To accelerate and strengthen the execution of this new position, our marketing dollars will be redirected from trade allowances toward the consumer to educate her on the important positive health benefits of using our home sparkling water system,” Mr. Birnbaum said. “We’ll be activating opinion leaders and evangelists, leveraging social media platforms, and increasing our in-store demonstrations so consumers can experience the new SodaStream.”
|A new marketing campaign places a greater focus on water and deemphasizes soda.|
Third, on the innovation front, SodaStream plans to introduce new sparkling water flavors made with no artificial sweeteners. Additionally, the company will rationalize or rebrand flavor syrups that don’t fit with the new strategy.
“We will continue to be a platform for other leading beverage and appliance brands to participate in the emerging home carbonation category,” Mr. Birnbaum noted. “The distinction will be that moving forward if the consumer proposition does not fit well with our Water Plus positioning, the flavor will be branded primarily under the partner’s brand name and we will pull that on use of the SodaStream brand.”
One such partnership is PepsiCo, which is testing its soft drink flavors in SodaStream machines in Orlando and Tampa, Fla., regions through the holiday period.
“And we’re excited about it,” Mr. Birnbaum said. “It will be on shelf displays and will be complemented with marketing demonstrations in stores. We’re pretty excited about the partnership and definitely excited with the level of partnership we’ve been getting from Pepsi themselves.”
Also on tap are next-generation beverage makers with new technology platforms. With the introduction of the modern design, featuring a snap lock, automation and silent valves, SodaStream will phase out older “clunky” models.
Distribution and operations
Distribution is the fourth component of SodaStream’s comprehensive plan. The company aims to retain growth with existing retailers while expanding into new channels, such as supermarkets, grocery stores and e-commerce.
And to improve operational efficiency, the company’s fifth growth driver, SodaStream is set to consolidate manufacturing in a new plant in Lehavim, Israel, with plans to close facilities in Alon Tavor and Mishor Adumim by late next year.
SodaStream expects the combined shutdown of the two manufacturing plants and the discontinuation of certain machines and flavors to result in a long recurring charge of up to $20 million.“These are significant changes we’re making in the business, but we feel it’s prudent to address the issues head on so we can take full advantage of what we believe is a unique platform for capitalizing on the seed change taking place in the carbonated beverage industry. A platform that has attracted other leading brands such as Kraft, Samsung, Kitchen Aid and most recently, Pepsi. While the changes outlined today will result in short-term headwinds we believe that they are necessary in order to gain long-term success for the business and for our shareholders.”