I picture Mayor Michael Bloomberg at home guzzling straight from the soda stream machine while nobody’s looking.
Today SodaStream (SODA) Chief Executive Officer Daniel Birnbaum confirmed that SodaStream would be selling its products in stores nationwide in the United States. This doesn’t come as a big shock to shareholders as they were waiting for the news. The announcement may however help a company that has a large short position rally on a short squeeze.
Of the 20 million shares of SodaStream outstanding, over half of them are held short. Of course, when an investor shorts a stock they are hoping the stock price goes down. In this case investors are calling SodaStream products a fad and think eventually consumers will lose interest in the home “soda” or “pop” maker. The recent announcement along with increase sales in the United States through new retail stores like Wal-Mart could trigger the squeeze.
SodaStream sells products that allow consumers to create their own carbonated beverages at home. The company then sells cartridges and flavorings as part of a razor blade model. The razor blade model is a tactic used by companies to sell an initial product (like a razor) at a cheap price, knowing that the consumer has to purchase additional items directly from the company at a higher profit margin (razor blade). The company sells flavors that allow users to create pop flavors similar to the offerings of pop companies like Coca-Cola and Pepsi.
New York City’s mayor Michael Bloomberg has made headlines recently for wanting to ban super sized carbonated beverages in his city. His rules would make it illegal to sell pops bigger than 16 ounces. The move would hurt restaurants and large pop companies like Coca-Cola, Pepsi, and Dr. Pepper Snapple. The move also brings a previously proposed soda tax on consumers back into the spotlight. The tax would be similar to the already passed tobacco legislation that added tax to tobacco products at the point of their purchase.
Since his time in office, Bloomberg has fought for tougher restrictions on restaurants. He has lobbied against using trans-fat products in restaurants. He also got his way by making New York City restaurants post their calorie counts directly inside their menus. Bloomberg will likely not get his way on the soda pop war. SodaStream could take advantage of this by launching a “Make the pop as big as you want” campaign as consumers who make pops at home using a SodaStream device have no restrictions.
The company is a convenience of not having to go to the store to buy pop and also a green play as it saves bottles from being used one time only. SodaStream products are not healthier than those offered by the big boys. They do allow consumers to control the amount made and the amount of syrup and carbonation in each bottle. Would Bloomberg trust consumers and back a product like this?
SodaStream will test select retailers with a soft launch in 2013, before going national in 2014.The company’s products will be available in drug stores and supermarket chains around the country. Recently, SodaStream products were added to Wal-Mart stores nationwide. The launch in Wal-Mart added over 2900 retail point of purchases to the company’s list. Prior to Wal-Mart, SodaStreams were available in big box retailers like Bed Bath & Beyond, Target, Kohl’s, and JCPenney. Bed Bath & Beyond even featured the device on the cover of its monthly flyer and prominently displayed the devices in stores around the holidays. Prior to the device being added to the big boxes, it was for sale to Americans on Amazon’s website.
The company, headquartered in Israel, has long been dependent on sales from European countries. Revenue from Europe was responsible for over half the company’s sales. At one point in 2010, over 50% of homes in Sweden had a SodaStream device. With the financial turmoil in Europe, SodaStream’s diversification away from Europe provides relief for investors.
SodaStream shares fell over 1% today to end at $37.66. The shares are at the low end of their fifty two week prices ($27.60-$79.72). When the company announces earnings or has a good Christmas buying season, investors could be racing to cover their short positions. Expect a short squeeze for this pop maker in 2012.