Pepsi Continues Move Away From Sugary Drinks With SodaStream Deal -- Update
August 20 2018 - 4:08AM
Dow Jones News
By Saabira Chaudhuri
PepsiCo Inc. has agreed to buy home-carbonation company
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 is a leading maker of countertop
water-carbonation machines. Its devices let people carbonate tap
water and other beverages at home by filling a reusable bottle. 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.
Pepsi previously has test-sold its cola with SodaStream machines
in a few dozen stores, at the time describing the experience as a
learning opportunity.
Its deal to buy SodaStream comes as consumers shift away from
sugary soft drinks toward bottled water and then flavoring it with
an array of syrups. 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
far beyond 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.
Pepsi sells the Aquafina water brand 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, 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 for 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.
Monday, Pepsi said buying SodaStream would give the Israeli
company the muscle it needs to expand geographically while helping
it accelerate its research and development.
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. Monday, Pepsi said buying SodaStream helps
it find "new ways to reach consumers beyond the bottle."
Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com
(END) Dow Jones Newswires
August 20, 2018 03:53 ET (07:53 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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