Comment - Soft Drinks & Water - The Kitchen: The New Soft Drink Frontline
Back in 2001, many of us smirked when the then-chief executive of the Coca-Cola Co, Doug Daft boldly announced that one day consumers would be able to turn on their taps and out would come Coke. Drinkers would make a decision as to whether they wanted tap water or the World’s favourite soft drink. The proposition was supposed to be quite simple; an in-house system (sealed, of course, to keep the recipe secret) would mix syrup with carbonated water in each customer’s home.
The concept seemed at best farfetched and at worst, well, daft.
The announcement last week, then, that Coca-Cola is buying a 10% stake in Green Mountain Coffee Roasters and that the companies will work together for the next ten years, suggests that Daft’s idea was not as outlandish as was once thought. The companies will collaborate together to produce Coca-Cola products in single-serving plastic pods for use in Green Mountain's yet-to-be-released Keurig Cold at-home beverage system. It is not quite the same as turning on the tap, but the principle is pretty much the same, suggesting that Daft sowed a seed back then that has been slowly germinating ever since.
Falling sales of CSDs in North America and sluggish demand in West Europe - where a successful launch will inevitably migrate to - suggest that there is undoubtedly a need for Coca-Cola to think outside of the box. Not only this, but, since the global financial crisis, consumer behaviour has changed and there has been a shift from away-from-home to at-home consumption. Coca-Cola may well be on to a good thing here.
I have always been a big advocate of the at-home mixing concept and have saluted the efforts of SodaStream to tap into this market, which seems to offer almost unlimited potential. Stylish and elegant designs have helped the company shake off dated perceptions, to become a genuine competitor to the big packaged players. Sometimes, controversial marketing campaigns have questioned the green credentials of buying packaged soft drinks and sizeable marketing budgets mean the message has reached prime-time audiences. The message has probably been niggling away at Coca-Cola and now they have answered back.
So, what does this all mean for SodaStream?
At first, the markets seemed unsure: SodaStream's share price initially fell but then rallied. Competition could be very healthy for the at-home soft drinks maker, and the noise generated will help to raise the profile of this undeveloped segment of the market. It may well prompt a debate among consumers as to which machine to buy in the same way that, in the 80s, we debated whether to buy VHS or BetaMax.
SodaStream may well be able to compete in terms of the look and the design of the machine but, when it comes to refreshment, then the syrup will, in the eyes of the drinker, always be a B brand.
The linkup between Green Mountain and Coca-Cola also poses significant questions for PepsiCo too and it looks like they run the risk of missing the boat. If there is to be a shift from packaged to ‘make your own soft drinks’, then PepsiCo looks to have already fallen behind.
All is not lost, however, and, as some commentators have quickly identified, (which is why the SodaStream share price rallied) there is another boat that PepsiCo can jump aboard. SodaStream itself could provide the US company with the opportunity to catch up with its long-standing rival, whilst giving SodaStream the perfect opportunity to address the 'B brand' perception of some of its syrups. In fact, with The Keurig Cold system not due out until late 2014 or even 2015, PepsiCo could even be able to jump into the lead.
It is all early days but, on paper, it does look like the kitchen could develop into a fierce new frontline for the soft drink giants. It will certainly be convenient for the consumer, whose grocery shopping bags will be easier to get home. For the operators, there are probably some very attractive margins to be had, particularly in the early days when the novelty will enable them to charge a premium.
The only concern I have with people making their own soft drinks at home is they may not follow the correct procedure. This may impact on the taste and, ultimately, the experience.
After all, the experience is the key component of any brand; an unsuccessful delivery may damage the brand. Then again, if they can make their own coffee at home I am sure they can make their own soft drinks.
Whatever happens there is already one major winner and that is Green Mountain.
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