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SodaStream’s sparkling water offensive brings healthy payola

SodaStream International, which makes machines to carbonate tap water at home, is looking to acquire companies and beef up marketing in key countries to keep its turnaround going.

The world’s biggest soda water company sold 3-million units in the past 12 months, boosting its customer base 4% from the end of 2016 to 11.5-million households, CEO Daniel Birnbaum said. With about $100m of cash and no debt, SodaStream is planning to spend to keep the momentum going.

“We’re on the offensive now,” Birnbaum said at SodaStream’s headquarters in Airport City, Israel. “We can buy companies, we can advertise more aggressively. We’re growing.” He did not specify which businesses SodaStream is targeting.

SodaStream’s willingness to spend reflects how far it has come since switching strategies in 2014. With sales and income flagging, the company moved away from at-home soda machines that competed in a $260bn market against giants such as Coca Cola and PepsiCo. Sceptical investors punished the stock, which bottomed out in February last year.

In October 2014, it began describing itself as “a leading manufacturer of sparkling water makers” and changed its tagline to “water made exciting”. Some 2,5 years later, the shift from soda to sparkling water is paying off: SodaStream’s profits almost quadrupled in 2016. Its US-traded shares have surged 342% since the recent low.

Birnbaum plans to focus the company’s efforts in places such as the US, Japan and Australia. SodaStream is seeing sustained growth across Europe, which accounts for about two-thirds of sales, he said.

That reliance on Europe has hurt SodaStream in the past. The company — which reports in US dollars — lost about $50m in sales in both 2014 and 2015 when the euro lost 22% of its value versus the greenback, Birnbaum said. SodaStream now endeavours more to link operating costs to the country of sales, he said.

“We learned our lesson from that,” Birnbaum said.

Palestinian issues

Founded more than 100 years ago in the UK, the company’s global profile has risen only in recent years. It generated headlines around the world as the target of the Boycott, Divestment, Sanctions (BDS) movement, which said the company’s factory in the West Bank perpetuated Israel’s occupation of the Palestinians.

Birnbaum describes the plant as a hothouse of coexistence, where 350 Israeli Jews worked side by side with about 500 Palestinians and 450 Israeli Arabs.

SodaStream closed the plant in October 2015 and relocated to a new campus in Rahat, in Israel’s south (BDS continued to call for a boycott of the company). Birnbaum denies that BDS pressure played a role in the decision, saying the move was long planned as part of his growth strategy. But he allows that anti-Israel activists helped etch Sodastream’s name in the public consciousness.

“BDS helped build brand awareness,” he said. “We should pay them royalties.”

About 1,600 people work in the Rahat factories, about half of them Arabs. Last month, 74 Palestinians from the West Bank were given permits to work in the new SodaStream factory.

Birnbaum says the Israeli government should double the amount of work permits for Palestinians. That would help alleviate both the shortage of manual labour in Israel and unemployment in the West Bank, which the World Bank pegs at 18%. His employees know that if any of their relatives are involved in terrorism, the entire family will lose their work permits — a powerful incentive to avoid violence, Birnbaum says.

Slow progress in US

“The solution is pretty clear,” Birnbaum said. “The Israeli economy can absorb another 100,000 Palestinians workers. This would change the economic landscape in the West Bank and Israel and create a climate for co-existence and dialogue.”

While promoting peace is one side of the SodaStream ethos, the company also markets itself as a greener way to consume cool drinks. Each SodaStream bottle can be used for 30,000 fill-ups, reducing the amount of plastic waste, Birnbaum said.

SodaStream’s chief has been waiting for a strong surge in environmentally conscious consumerism in the US, which investors have identified as the company’s next big opportunity. Only about 1.25% of American homes have soda machines, trailing the 10%-20% in most countries in which SodaStream does business, Birnbaum said.

American consumers are “slow to change habits”, especially regarding issues of sustainability, Birnbaum said. The company reported $115m in revenue in the Americas last year, or 24% of the total.

SodaStream was not presently planning on expanding beyond its current markets, forgoing huge countries such as China, Brazil and India, Birnbaum said. The company was wary of entering countries where the tap water is of questionable quality, he said.

“We’re not looking for adventures outside our core markets right now,” Birnbaum said. “We have so many exciting opportunities where we are.”

Source: Bloomberg

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