By Saabira Chaudhuri
PepsiCo Inc. has agreed to buy SodaStream International Ltd. for
$3.2 billion, the latest move by the cola giant to diversify away
from sugary sodas and salty snacks.
Israel-based SodaStream makes countertop machines that allow
consumers to carbonate tap water and other beverages at home by
filling a reusable bottle and flavoring with an array of syrups.
The Nasdaq-listed company has in recent years focused on promoting
itself as a maker of homemade sparkling water instead of a maker of
homemade soda.
PepsiCo has been under pressure this year to restructure its
North America beverage business amid weak sales of its core brands
Pepsi-Cola, Mountain Dew and Gatorade. The sales slump came after
the company last year shifted too much shelf space and advertising
money to new, healthier brands.
PepsiCo had previously test-sold its cola with SodaStream
machines in a few dozen stores, describing the experience at the
time as a learning opportunity.
The soda giant's deal to buy SodaStream comes as consumers shift
away from sugary soft drinks toward bottled water. More broadly,
big brands are losing shelf space to smaller, trendier entrants and
established players are scrambling for growth.
Under outgoing Chief Executive Indra Nooyi, Pepsi has expanded
from its cola roots, into hummus, kombucha and other healthier
products, although results have been mixed. The company has set a
target for sales growth of nutritious products to outpace the rest
of the portfolio by 2025.
PepsiCo sells the Aquafina and LIFEWTR water brands in the U.S.
and earlier this year launched a new brand of sparkling water
called Bubly.
Sparkling water has grown far more strongly than the overall
bottled water category in the U.S., clocking volume growth of 38%
last year up from 35% in 2016 according to data from industry
tracker Beverage Marketing Corp. That compares with 7% growth for
the overall packaged-water industry, down from 9% in 2016.
Growth is being driven by a continued move away from carbonated
soft drinks that use sugar or sweeteners and toward healthier,
low-calorie drinks that lack artificial ingredients, say analysts.
By contrast still, bottled water--a much bigger category--has seen
sales slow amid competition from sparkling water, tea, coffee and
other beverages.
On Monday, PepsiCo said buying SodaStream would give the company
the muscle it needs to expand geographically while helping it
accelerate its research and development.
The Israeli company has courted controversy in recent years
because its former location--in the West Bank town of Ma'aleh
Adumim--made it a target for campaigns, who urged consumers to dump
its products if it remained in disputed territory.
In 2014, SodaStream gave into the political pressure and
announced it would move its headquarters to Tel Aviv and its
manufacturing operations to southern Israel.
The countertop carbonation-machine maker is widely accepted to
have invented the notion of make-it-at-home soda and has roots
going back to 1903 when it was founded in London by a gin
distiller.
In early years it was marketed to Britain's upper class, and was
reportedly a favorite of the royal household. But home carbonation
of tap water eventually took off and the company's heyday came in
the 1970s and 1980s, reaching 10 million U.K. homes, alongside a
marketing catch phrase "Get Busy With the Fizzy."
A series of changes of ownership, which included Reckitt &
Coleman and Cadbury Schweppes, grounded momentum. Eventually the
company was bought by Soda-Club, its Israeli distributor. Then
private equity took a controlling interest, appointed Daniel
Birnbaum--previously the Israel CEO of U.S.-based sports-apparel
giant Nike Inc.--as CEO, and listed the stock in 2010. SodaStream
now has 2,000 employees.
Earlier this month SodaStream reported its revenue had climbed
31% to $171.5 million for the quarter to June 30, while net income
jumped 82%. The company described the quarter as its best ever,
saying sales of sparkling water maker units increased 22% to over
one million as its machines reach more households and concerns
about single-use plastic mount. Soda Stream machines come with a
reusable plastic or glass carbonation bottle, which the company
estimates helps consumers save up to 1000 bottles and cans a
year--and a refillable gas cylinder.
In Western Europe, where SodaStream makes the majority of its
sales, a backlash against single-use plastic has taken hold in
countries like the U.K. In recent years, SodaStream's marketing had
criticized the big makers of bottled water including Nestlé,
Coca-Cola Co. and PepsiCo., arguing that plastic bottles cause
pollution.
One ad featuring "Game of Thrones" actors Hannah Waddingham and
Thor Bjornsson parodying a scene from the TV series, with a woman
crying "Shame!" as she followed a man carrying bottled sparkling
water out of a grocery store.
As recently as this month, SodaStream had been planning a fall
campaign "against single-use plastic bottles and big beverage," a
company spokeswoman said earlier this month.
PepsiCo said Monday that buying SodaStream helps it find "new
ways to reach consumers beyond the bottle." A spokesman Monday said
the SodaStream acquisition is one of several ways in which the soda
giant is reducing the use of plastic bottles. Others include
Drinkfinity, a kit that includes reusable bottle and recyclable
flavor pods, and Aquafina water stations, which dispense water with
or without flavors in offices and on college campuses.
Felicia Schwartz contributed to this article.
Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com
(END) Dow Jones Newswires
August 20, 2018 10:02 ET (14:02 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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