The last company to revolutionize counter-top beverage machines
saw its stock skyrocket more than 10,000 percent. While that return
didn't materialize overnight (it took a decade) the company,
Green Mountain Coffee Roasters (Nasdaq: GMCR)
, is still going strong.
In the quarter ended June 26, 2010, the company's sales surged
85 percent year-over-year.
Green Mountain Coffee Roasters has enjoyed rapid growth by using
the razor-razorblade business model - a strategy in which one good
is sold at a discount while the second dependent good is sold for a
In Green Mountain's case, the company's Keurig single-serve
brewers are sold at close to break-even, while K-cups (the single
serve portion packs) are responsible for the profits. To tempt more
and more consumers to buy its offerings, Green Mountain sells a
wide variety of coffees, teas, and cocoas that are the razor-blade
equivalent to the company's Keurig machines.
***There's another company that just went public that appears to
have a similar strategy - although this time the offerings are
carbonated beverages instead of coffee, teas and cocoa.
SodaStream International Ltd. (Nasdaq: SODA)
sells a blender-sized machine that allows customers to turn tap
water into seltzer water or carbonated soda. Customers can choose
from over 100 different flavors. The machines cost $79 to$199, but
CO2 refill tanks and flavor packets cost extra.
The Israel-based company just offered 5.45 million shares to the
public earlier this month at $20 per share via an IPO. On its first
day of trading, the stock opened at $24.75 and closed at $30.70 on
Friday. That performance represents a 24 percent jump since the
first traded price (I like to use this price because it represents
the price an average investor could buy shares at).
***SodaStream currently has an average household penetration of
5 to 15 percent in its Western-European markets where it has more
operating history. With 80 percent of sales coming from Europe it's
now turning attention to the U.S. market. The company has already
begun selling in retail stores like
Bed Bath & Beyond (Nasdaq: BBBY)
Retailers are stocking their shelves with this innovative
product for the holiday shopping season. I think the price point is
perfect for most budgets - and I wouldn't be surprised if a number
of customers purchased one for themselves in addition to one as a
***Not only is the timing of the IPO and the push to increase
distribution excellent, but SodaStream is entering the largest
soda-consuming country in the world. The U.S. represents 20 percent
of the $234 billion global carbonated beverage market.
To really tap into this market, SodaStream will have to change
the way people consume soda, certainly no small feat. Changing the
status quo is hard, but it's not impossible as evidenced by the
popularity of the Keurig machine.
To change behavior SodaStream is hoping consumers recognize the
valuable features of the machine, in addition to the convenience of
having an 'at home' soda dispenser.
The convenience of the product is undeniable. Owners will no
longer have to carry dozens of soda bottles home from the
supermarket, store them, or dispose of the empties. They will also
have the luxury to choose from 100 different flavors - without
leaving the comfort of their home. With flavor packs like tonic,
the SodaStream System can also help you convert your kitchen into a
fully stocked bar - perfect for the holidays with your in-laws.
The initial upfront costs may scare away some customers,
especially in rough financial times, but there could be en economic
payback - in addition to just the convenience factor.
Heavy soda consumers could actually save money. SodaStream's
CEO, Daniel Birnbaum, believes that customers will be able to save
up to 70 percent of their drinking bill. One CO2 tank, which costs
$15 to refill, makes around 60 liters of soda. That works out to
just 25 cents per liter of soda!
***The product itself is certainly compelling, but investors may
be more concerned with SodaStream's growth potential. Here too, the
results are impressive.
In the last two and a half years the company has entered 24 new
markets around the world. In the first half of 2010, revenues
increased 50 percent, to $94 million, compared to the first 6
months of 2009. In the same time period, SodaStream's net income
increased 784 percent to $5.7 million, aided in no small way by a
50 percent profit margin.
***I like the growth potential of this company and am intrigued
by the product. If SodaStream can grow in the U.S. like it has in
other markets then there is tremendous upside potential for its
stock. And if its product turns out to be as sensational as rumor
suggests the company could transform millions of kitchens
throughout the world.
In that case, SodaStream could just be the next big winner in
the beverage market.
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like SodaStream. Check it out
Do you think Soda Stream has potential? Send your comments and