MarketLine Case Study

SodaStream
International Ltd.
Shaking up the US soda market
Reference Code: ML00013-017

Publication Date: July 2013

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OVERVIEW
Catalyst
SodaStream International Ltd. (SodaStream) engages in the manufacturing, distribution and marketing of home
carbonation systems that enable consumers to transform ordinary tap water instantly into flavored carbonated beverages
such as carbonated soft drinks and sparkling water. As health and environmental concerns over pre-packaged soft drinks
have grown, so too has the company, and it is now listed on the NASDAQ stock exchange. As a result, the company has
recently been reported as a potential acquisition target for heavyweights The Coca-Cola Company (Coca-Cola) and
PepsiCo, Inc. (Pepsi) .This case study analyzes SodaStreams route to recent success, and assesses why it has started
to generate such a buzz in 2013.

Summary
The global carbonated soft drinks market has enjoyed a prolonged period of growth, and continued to grow
during the recession. Notably, the United States accounts for a large proportion of the global total, but the
market has been in decline for the past few years. Additionally, soda products have received bad press in recent
years, with concerns over health and the environment dominating headlines.

Headquartered in Israel, SodaStream has become a truly international brand and company. It was founded in
1903, began making the first home carbonated drinks system in 1955 and saw popularity in the UK and Europe
during the 1970s and 1980s. However, the brands popularity fizzled out after this and, after a number of
acquisitions, was acquired by a group led by Fortissimo Capital in 2007.

After a number of years out of the spotlight, SodaStream re-launched its product in the UK in 2010, and went on
to push its products in other key markets. Notably, this included the US, where the company has embarked on
an extensive marketing and PR campaign in order to maximize household penetration, which included a banned
Super Bowl commercial in 2013 that was seen as overly-critical of Coca-Cola and Pepsi. Crucially, the
companys recent strategy is centrally focused on the health and environmental benefits of its soda-making
product. SodaStream has also entered into a number of partnerships with other companies in order to increase
the appeal of its supplementary consumable products, and has begun an attempt at premiumization in order to
promote the long-term appeal of its soda makers.

In the wake of its recent expansion efforts, SodaStream has seen its top line grow rapidly, and its US growth
has actually outpaced its overall growth, outperforming the whole carbonated soft drinks market by some
margin. The companys revenue mix has also started to weigh in favor of more profitable consumables,
contributing towards SodaStreams bottom line growth. As a result, the company is now in a much stronger
position moving forward than it was in 2008, when profitability was very low.

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TABLE OF CONTENTS
Overview ............................................................................................................................................................................. 2

Catalyst............................................................................................................................................................................ 2

Summary ......................................................................................................................................................................... 2

The Soda market is vast and growing ................................................................................................................................. 5

The global carbonated soft drinks market is growing....................................................................................................... 5

The US offers huge opportunity ....................................................................................................................................... 5

The soda industry is often the subject of bad press......................................................................................................... 7

SodaStream as a company ................................................................................................................................................. 8

SodaStream has a long history, and a previous UK focus............................................................................................... 8

The product was a fun gadget ......................................................................................................................................... 8

SodaStream operates a razor/razor blade business model ............................................................................................. 8

The SodaStream relaunch .................................................................................................................................................. 9

Early relaunch.................................................................................................................................................................. 9

A new focus on environmentalism and health ................................................................................................................. 9

SodaStream as an Earth Friendly product................................................................................................................. 9

The banned Super Bowl commercial ......................................................................................................................... 10

Health consciousness ................................................................................................................................................ 10

Strategic partnerships.................................................................................................................................................... 11

SodaStream has used existing brand power to boost its own brand.......................................................................... 11

Partnerships with designers and Samsung have premiumized the brand.................................................................. 12

SodaStreams revenue has trebled since 2008 ............................................................................................................. 14

The Americas now accounts for over a third of SodaStreams sales ............................................................................. 14

Recurring income continues to rise ............................................................................................................................... 15

Profitability is increasing ................................................................................................................................................ 16

Conclusions....................................................................................................................................................................... 17

SodaStream has seen tremendous growth, but is yet to fulfill its potential .................................................................... 17

Appendix ........................................................................................................................................................................... 18

Definitions...................................................................................................................................................................... 18

Sources ......................................................................................................................................................................... 18

Further Reading............................................................................................................................................................. 20

Ask the analyst .............................................................................................................................................................. 21

About MarketLine .......................................................................................................................................................... 21

Disclaimer...................................................................................................................................................................... 21

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TABLE OF FIGURES
Figure 1: Global carbonated soft drinks market value, 2007-2016, $bn .............................................................................. 5

Figure 2: Global carbonated soft drinks market volume geography segmentation.............................................................. 6

Figure 3: US carbonated soft drinks market volume, 2007-2011, billions of liters ............................................................... 6

Figure 4: A frame from SodaStreams banned Super Bowl commercial ........................................................................... 10

Figure 5: The SodaStream 1970s lineup (left) and the SodaStream Source lineup 2012 (right) ....................................... 12

Figure 6: SodaStream key financial data, 2008-2012, $m................................................................................................. 14

Figure 7: SodaStream geographical revenue segmentation, 2010-2012, % ..................................................................... 15

Figure 8: SodaStream product type revenue segmentation, 2010-2012, $m .................................................................... 15

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THE SODA MARKET IS VAST AND GROWING
The global carbonated soft drinks market has enjoyed a prolonged period of growth, and continued to grow during the
recession. Notably, the United States accounts for a large proportion of the global total, but the market has been in
decline for the past few years. Additionally, soda products have received bad press in recent years, with concerns over
health and the environment dominating headlines.

The global carbonated soft drinks market is growing

The global carbonated soft drinks market had total revenues of $211.5bn in 2011, representing a compound annual
growth rate (CAGR) of 1.7% between 2007 and 2011. Growth is set to continue to 2016, with an anticipated CAGR of
2.6% for the five-year period 2011 - 2016, which is expected to drive the market to a value of $240.3bn by the end of
2016.

Additionally, the markets volume has also seen increases, and market consumption volumes increased with a CAGR of
1.3% between 2007 and 2011, to reach a total of 196.6 billion liters in 2011. The market's volume is expected to rise to
221 billion liters by the end of 2016, representing a CAGR of 2.4% for the 2011-2016 period.

Figure 1: Global carbonated soft drinks market value, 2007-2016, $bn

300

250
Market value ($bn)

200

150

100

50

0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

SOURCE: MarketLine Industry Profile Global Carbonated Soft Drinks MARKETLINE

Notably, the global carbonated soft drinks market continued to grow through the global economic downturn, albeit at a
less than strong rate. Such growth does, however, show the strength of the overall market in the face of economic
difficulties: consumption continues to grow in spite of financial instability. This fact makes it an attractive prospect for
companies looking to grow revenues.

The US offers huge opportunity

It is worth noting that the US is by far the largest single market for carbonated soft drinks in the world. In fact, as
evidenced by figure 2, the volume of carbonated soft drinks consumed in the US per year is comparable to that of the
whole of Europe, and far exceeds that of the entire Asia-Pacific region. The US total volume of carbonated soft drinks
consumed in 2011 stood at 57.3 billion liters, or 183.9 liters per person. This per capita figure is very high in relation to
the same figure for other countries, such as the UK, where per capita consumption is 43.2% less at 104.6 liters per year.

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 Figure 2: Global carbonated soft drinks market volume geography segmentation

US Europe Rest of World Asia-Pacific

14.3%
29.2%

27.1%

29.5%

SOURCE: MarketLine Industry Profile Global Carbonated Soft Drinks MARKETLINE

However, in recent years, the US carbonated soft drinks market has been in decline, forcing downward pressure on key
players operations within the country. In fact, The Coca-Cola Company (Coca-Cola) and PepsiCo, Inc. (Pepsi), who
together accounted for 74.4% of the US market value in 2011, have increased the price of their soda products in order to
offset declining volumes.

Figure 3: US carbonated soft drinks market volume, 2007-2011, billions of liters

61

60

59

58

57

56

55
2007 2008 2009 2010 2011

SOURCE: MarketLine Industry Profile Carbonated Soft Drinks in the United States MARKETLINE

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The soda industry is often the subject of bad press
High consumption of soda is often linked to health problems, such as diabetes and obesity, due to the large amount of
sugar and sweeteners that make up the end product. In fact, research presented by Harvard researchers at the American
Heart Associations Epidemiology and Prevention/Nutrition, Physical Activity and Metabolism 2013 Scientific Sessions in
March, 2013, claimed that 180,000 deaths worldwide were linked to sugary beverages in 2010.

Such findings have led to a number of campaigns in recent years in order to reduce soda consumption, both in the US
and other regions, and to instead encourage consumers to drink healthy alternatives, such as fresh fruit juice and water.

Perhaps the most famous recent example of this is the proposed banning of the sale of sugary drinks in containers
holding more than 16 ounces (455 mililiters) in New York City. In a bid to curb obesity in the city, Mayor Michael
Bloomberg aimed to impose a city-wide ban in March 2013, but this was overturned by a New York judge before it came
into effect. At the time of writing, the New York City Law Department is currently in the process of appealing against the
decision.

Furthermore, environmental concerns have also arisen regarding the industrys method of distribution: through plastic
bottles and aluminum cans. This has led to movement by key soft drinks players in order to develop more sustainable
packaging for their products in order to respond to environmentalist criticism. This is a major trend within the current
industry.

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SODASTREAM AS A COMPANY
Headquartered in Israel, SodaStream has become a truly international brand and company. It was founded in 1903,
began making the first home carbonated drinks system in 1955 and saw popularity in the UK and Europe during the
1970s and 80s. However, the brands popularity fizzled out after this and, after a number of acquisitions, was acquired by
a group led by Fortissimo Capital in 2007.

At the height of its popularity, the company placed an emphasis on the fun nature of its product, and it was marketed as a
must-have-gadget. Furthermore, there was little concern for health or environmentalism. Interestingly, the company
operates a razor/blade business model, whereby device sales are designed to promote long-term recurring purchase of
affiliated consumable products as the companys main revenue stream.

SodaStream has a long history, and a previous UK focus

th
Although the company did not see great success until later in the 20 century, it is worth noting that the foundations of
the product were laid in the UK as early as 1903, when Gin distillery W&A Gilbey created a machine that butlers would
use in order to produce soda water for upper-class families. The product therefore started life as a somewhat premium
device, that was exclusive to rich demographics.

However, in 1955 the company developed the worlds first system for making fizzy drinks at home, which became the
SodaStream. The product saw popularity in the 1970s and 1980s in Europe, but its popularity subsequently dwindled
amongst consumers.

Following this, the company was the subject of a number of acquisitions. In 1985, Cadbury Schweppes acquired the
company and, by 1989, its annual turnover was 15.1m (approximately $26.9m at an average 1990 exchange rate),
80.8% of which was accrued in the UK, and had a workforce of around 170.

However, in 1998, Cadbury Schweppes sold the company to Soda Club Enterprises NV, which, at the time, was its
Israeli distributor. Following this, Fortissimo Capital Fund invested just EUR4m (approximately $3.1m) in order to gain
control of the company, with the option to invest up to EUR8m (approximately $6.1m) over the next two years at the
same price per share. On November 3, 2010, SodaStream International Ltd. began trading on the Nasdaq Global Select
Market following its initial public offering (IPO), which raised $109.5m.

The product was a fun gadget

At the height of its initial popularity, the SodaStream was marketed as a fun kitchen gadget, and a key emphasis was
placed on its ability to create fizzy, sugary soft drinks. Furthermore, television advertisements of the time often focused
on the plethora of flavors that could be made with the device, which included such brand names as Tizer and Vimto, two
popular bottled soft drink brands in the UK.

Additionally, adverts included appearances from the likes of comedian Tommy Cooper, and implored consumers to Get
busy with the fizzy, which was the companys slogan.

SodaStream operates a razor/razor blade business model

Although the SodaStream brand is synonymous with soda-making machines, it is important to note that the company is
not exclusively focused on sales of its devices. In fact, the company operates a razor/razor blade business model,
whereby sales of SodaStream devices (the razor) serve as a driver for recurring sales of affiliated consumable products,
such as flavoring syrups, carbon dioxide refills and carbonation bottles (the razor blades). These consumables are key to
the companys profitability, as they enjoy higher margins.

Although this diversifies SodaStreams product lineup, each product remains intrinsically linked to another. Sales of
consumables are directly dependent on initial sales of the SodaStream device, but in order to maintain recurring sales,
the longevity of the products usefulness must be championed. This is crucial to the on-going viability of the companys
business model.

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THE SODASTREAM RELAUNCH
After a number of years out of the spotlight, SodaStream relaunched its product in the UK in 2010, and went on to push
its products in other key markets. Notably, this included the US, where the company has embarked on an extensive
marketing and PR campaign in order to maximize household penetration, which included a banned Super Bowl
commercial in 2013 that was seen as critical of Coca-Cola and Pepsi. Crucially, the companys recent strategy is
centrally focused on the health and environmental benefits of its soda-making product. SodaStream has also entered into
a number of partnerships with other companies in order to increase the appeal of its supplementary consumable
products, and has begun an attempt at premiumization in order to promote the long-term appeal of its soda makers.

Early relaunch
Subsequent to the aforementioned chain of takeovers, SodaStream began to actively re-launch its product in the UK in
2010, when it began to advertise its product on television in June for the first time in almost 20 years.

Notably, the revamped campaign echoed the earlier fun aspect of the device, and played on the influence of nostalgia in
order to promote the product, re-using the Get busy with the fizzy slogan.

This coincided with the companys push into other regions, such as the Americas, where exciting growth opportunities
existed. However, in order to appeal to other markets, the company could not rely on nostalgia as a driver of sales.

This is something acknowledged by the company, which states that increases in sales and marketing expenses are
primarily due to increased advertising costs relating to its continued expansion in the US.

A new focus on environmentalism and health

SodaStream now claims that its products are environmentally friendly, cost effective, promote health and wellness, and
are customizable and fun to use. The environmental advantages of its soda makers are a key area that the company
has focused on during its marketing campaigns. Furthermore, the company has aimed to place an emphasis on healthy
lifestyles and nutrition with regards to its complementary consumable products, as it looks to capitalize on consumer
movement away from conventional pre-packaged soda products.

SodaStream as an Earth Friendly product

While earlier focus was on the fun nature of the product, SodaStream now promotes itself as an Earth Friendly
company, and claims that its devices are active green products, with which consumers are able to actively reduce their
impact on the environment thanks to reduced transport, packaging reduction and packaging reuse.

This claim is the central motif present within the companys recent advertising campaigns, and serves as a key boon to
the company with regards to its attempt to compete with leading soda players Coca-Cola and Pepsi.

According to SodaStreams Earth Friendly section of its corporate website:

SodaStream home soda maker enables you to greatly reduce your carbon footprint and minimize waste of plastic bottles
and cans. Thats because SodaStream turns tap water into any carbonated drink at home and uses a reusable bottle.

The reusable bottle mentioned by SodaStream in its marketing material is also indicative of the companys aim to
promote its product as a viable alternative to conventional bottled soda, which has received much environmental criticism
in recent years.

SodaStream offers both glass and plastic reusable bottles, the latter of which are bisphenol A free (BPA -free) and are
designed to have a lifespan of three years. This is in stark contrast to the delivery method of incumbents Coca-Cola and
Pepsi, whose bottles are intended for single-use purposes. This is a key advantage held by SodaStream over such rivals,
who are racing to develop completely green bottles in order to allay environmental concerns.

SodaStream has attempted to capitalize on this trend towards environmentally friendly soda packaging by directly
referring to it in its recent marketing campaigns.

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The banned Super Bowl commercial
In February 2013, the company aired its first ever Super Bowl commercial. The US sporting event is largely regarded as
the single most-watched in the world, and attracted over 108 million viewers in 2013. However, the upshot of this level of
brand exposure is that costs are extremely high, and the price for a 30 second slot rose to a staggering $4m in 2013. The
airing of the commercial therefore represents the companys most focused attempt at targeting the US market.

However, the companys originally planned commercial was rejected by broadcaster CBS, reportedly due to the fact that
it directly referenced Coca-Cola and Pepsi, both big sponsors of the event. The commercial showed two deliverymen and
two trucks with the companies branding, racing to deliver large consignments of Coca-Cola and Pepsi to a supermarket.
The bottles then explode shortly before the narrator claims that With SodaStream, we could have saved 500 million
bottles on game day alone. The commercials final dialogue was the new slogan: If you love the bubbles, set them free.

Figure 4: Aframe from SodaStreams banned Super Bowl commercial

SOURCE: YouTube/SodaStream MARKETLINE

In its place, SodaStream aired a different commercial, which still represented exploding bottles and the same dialogue,
but without the direct reference to Coca-Cola and Pepsi. However, the banned commercial attracted a large amount of
media attention, and found popularity online when it was released by SodaStream itself. In fact, the banning of the
companys original commercial attracted so much media attention that it could actually be considered a success in terms
of raising the awareness of the SodaStream.

Remarkably, the company also had an advertisement banned in the UK in the previous year due to the fact that it was
claimed that the commercial indicated that SodaStream was more environmentally friendly than rival, established sodas.

Although the company has been criticized for such marketing endeavors, such advertisements are emblematic of its
overall strategy: it is focused on challenging established incumbents in the soda market, and the environmental aspect of
its products design and delivery mechanism is the cornerstone of the companys strategy. Through its marketing,
SodaStream has been able to convey the message that it intends to disrupt the market, most ostensibly through
challenging the traditional distribution model of cans and bottles.

Health consciousness
Recently, SodaStream has begun to place a greater emphasis on healthy drinks, rather than traditional sugary soda.
However, the impact of the companys health campaign is undermined to an extent by the fact that it also offers sugary
syrups for use with its machines. However, the degree of choice given to consumers is the companys main advantage
held in this area.

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As part of its consumable product lineup, SodaStream has introduced a range of naturally flavored soda syrups, under
the Sparkling Naturals moniker. Furthermore, the company also offers: Sparkling Naturals for Kids, which are naturally
sweetened with added vitamins; a Clear line of syrups, which are free of artificial colors, and preservatives, and are
sweetened with just fructose; flavor essences, which enable consumers to make flavored sparkling water; and iced tea
syrups, such as green tea which naturally contains anti-oxidants.

However, it is important to note that the company offers over 100 different types of syrups, and these include sugary
syrups for beverages such as cola, artificially sweetened diet versions of popular flavors of soda and energy drinks.

The result of this is that, although the company has increased its focus on healthier drinks, a large part of its syrup
product lineup could still be viewed as unhealthy due to the presence of traditional sugary soda flavorings. However,
what sets SodaStream apart from soda makers, who utilize the traditional model of soda distribution in cans and bottles,
is the amount of consumer choice on offer.

Although leading players do offer a choice of brands Pepsi, for instance, markets a total of 12 brands of soft drink in the
US consumers are not given a choice regarding quantities of ingredients. The real selling point of SodaStream in
relation to this is the fact that consumers are able to pick and choose exactly what flavorings are in their drinks, as well
as their quantity. This is a major boon to parents looking to control the diet of their children, as well as health conscious
consumers looking to control their own diet.

However, SodaStream does not offer consumers a tremendous price saving when compared to other premium brands of
soda. For instance, the average US consumer, buying Coca-Cola in 2 liter bottles, would spend $123.25 per year at
$0.67 per liter. By way of contrast, a consumer producing soda through SodaStream branded syrups, which retail
between $4.99 and $9.99 per 500ml bottle which produces 12 liters of soda, would face a minimum annual cost of
$76.50, and a maximum of $153.14.

Although lower cost syrups appear to be cheaper, this figure does not include the purchase of a SodaStream soda
maker, the cheapest of which is available on Amazon for $79.99, and gas canister refills, which can be obtained for a
typical price of $14.99 per 60 liters.

Essentially, SodaStream does not offer consumers cheaper soda: it offers consumers the option to control their soda
intake, as the onus is on them to decide which drinks to make. This is appealing in an environment of health
consciousness, especially to consumers that value health and wellbeing over financial cost.

Strategic partnerships
In order to promote its own brand, SodaStream has entered into a number of partnerships in recent years. This is a
strategy the company used in the UK in the 1960s and 1970s, but its recent partnerships have had a clear US-centric
focus. Branding partnerships with well-known products from the likes of Kraft Foods Group, Inc. (Kraft) have helped
SodaStream gain a sense of legitimacy amongst wary US consumers, thus effectively promoting its soda makers and
consumable products. Furthermore, the companys partnerships with leading designers and Samsung Electronics Co.,
Ltd. have served to premiumize its device offering, lending credence to the supposed longevity of the product.

SodaStream has used existing brand power to boost its own brand
In addition to offering its own branded flavors of soda syrups, SodaStream has historically offered branded flavors. For
example, in the UK, SodaStream offered flavors such as Vimto and Tizer, two popular UK-centric brands of soda.
However, the company has looked to buoy its recent focus on the US by entering into strategic partnerships with
established players in the US soda market.

This is a key part of the companys strategy, and is an area mentioned in its 2012 20-F document:

We have recently entered into strategic co-branding transactions with Kraft Foods, Inc. relating to Crystal Light
lemonade, Country Time lemonade and Kool-Aid, with Campbell Soup Company relating to V-8 Splash and V-8 Fusion
and Ocean Spray Cranberries Inc. relating to cranberry-based beverages, among others.

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The partnership with such companies with strong brands has meant that SodaStream has been able to promote its
product alongside soft drinks that already enjoy popularity in the market. Furthermore, by exploiting existing brand power,
SodaStream is able to extend the viability of its product as an alternative to traditional, popular soda, thus encouraging
long-term use and recurring consumable sales. This should, in turn, boost profitability.

Partnerships with designers and Samsung have premiumized the brand

In addition to flavoring partnerships, SodaStream has also entered partnerships in terms of the design of its machines.
Notably, this includes partnerships with leading designers relating to the design of some variations of its hardware, as
well as a recently announced partnership with Samsung to produce fridges containing SodaStream soda makers. These
have been utilized by SodaStream in order to promote its machines as an integral part of its consumers kitchens,
therefore encouraging prolonged, frequent use.

In 2012, SodaStream released the SodaStream source, a premium metal version of its soda maker designed by award
winning designer, Yves Bhar. Incidentally, Yves Bhar is an advocate of sustainable environmentalism, perfectly
complementing SodaStreams environmental marketing strategy. The companys aim with the product is to increase the
simplicity for consumers, as evidenced by Behars description:

SodaStream uses technology to reduce the complexity and waste of sparkling water and soda, and this is the quality I
focused on; creating a simple and beautiful object for the kitchen while keeping 21st century values.

Figure 5: The SodaStream 1970s lineup (left) and the SodaStream Source lineup 2012 (right)

SOURCE: Channel 4/Metro.co.uk MARKETLINE

As evidenced in the above picture, the newly designed Source models have a distinctly premium quality when compared
to the companys earlier models. This, combined with the simplicity of the new design, mark an attempt by SodaStream
to cement its product as a viable kitchen fixture, rather than a toy-like gadget.

This aim is further evidenced through SodaStreams recently announced partnership with Samsung, whereby the
company is set to integrate SodaStream soda makers into fridges. In February, 2013, Samsung announced a new four
door refrigerator featuring the industrys first-ever automatic sparkling water dispenser, provided by SodaStream.
According to the press release:

With the addition of the sparkling water dispenser, consumers can save space in the refrigerator that was previously
allocated toward bottled carbonated beverages and reduce bottle waste in the home overall. In addition, consumers will
ultimately save money that was used to purchase carbonated beverages, all while enjoying the convenience of getting
sparkling water at the touch of a button.

The inclusion of SodaStream in a refrigerator, a staple of the kitchen appliance industry, is a large step forward for the
company in relation to its aim to make its product a commonplace feature of consumers kitchens. Furthermore, the
alignment with Samsung, a reputable manufacturer, serves to further strengthen SodaStreams brand appeal, and lends
credence to the SodaStreams ability to serve as a viable substitute to traditional soda.

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The result of this is that consumers will be more likely to use SodaStream on a recurring basis and, due to the nature of
the companys business model, is vital regarding the companys on-going profitability.

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THE COMPANY HAS ENJOYED SUBSTANTIAL
FINANCIAL SUCCESS
In the wake of its recent expansion efforts, SodaStream has seen its top line grow rapidly, and its US growth has actually
outpaced its overall growth, outperforming the whole carbonated soft drinks market by some margin. The companys
revenue mix has also started to weigh in favor of more profitable consumables, contributing towards SodaStreams
bottom line growth. As a result, the company is now in a much stronger position moving forward than it was in 2008,
when profitability was very low.

SodaStreams revenue has trebled since 2008

Prior to the companys recent listing and significant re-launch, the company was in a less than impressive state. Although
not a trivial number, the companys revenues stood at just under $130m in 2008. However, as figure 6 shows, the
companys revenues have risen dramatically over the past four years.

Figure 6: SodaStream key financial data, 2008-2012, $m

Revenue Net income Profit margin

500 12.0%
450
10.0%
400
350
8.0%
300
$m

250 6.0%
200
4.0%
150
100
2.0%
50
0 0.0%
2008 2009 2010 2011 2012

SOURCE: SodaStream 2012 Form 20-F MARKETLINE

In fact, the company saw dramatic growth in 2012, when revenues grew by 51%. By way of contrast, the global
carbonated drinks market is expected to have grown by just 2.4% over the same period, while the US market is only
expected to have grown by 0.2%. In terms of revenue, SodaStreams growth is easily outperforming that of traditional
soda products.

The Americas now accounts for over a third of SodaStreams

sales
The companys extensive targeting of the US market has paid off, as it has seen its revenues grow drastically in the
Americas in recent years. In fact, in 2012, SodaStreams Americas segment substantially outperformed the rest of its
regional segments, and grew by a staggering 88%. This, coupled with similar growth in recent years, has meant that the
proportion of total revenues accrued in the Americas has risen from 19.6% in 2010 to 36.1% in 2012.

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 Figure 7: SodaStream geographical revenue segmentation, 2010-2012, %

The Americas Western Europe Asia-Pacific CEMEA

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2010 2011 2012

SOURCE: SodaStream 2012 Form 20-F MARKETLINE

These figures suggest that SodaStream has succeeded at entering the lucrative US market, as it has had a significant
bearing on the distribution of the companys operations. However, in relation to the overall US soda market, SodaStream
remains a drop in the ocean, and the potential for further expansion in the US is huge. This is something that Coca-Cola
and Pepsi will be wary of in the future.

Recurring income continues to rise

Owing to the companys razor/razor blade business model, recurring sales of more profitable consumables are vital to
SodaStreams on-going profitability. It is therefore encouraging that, in recent years, sales of consumables have steadily
risen alongside those of soda makers and exchangeable CO2 cylinders.

Figure 8: SodaStream product type revenue segmentation, 2010-2012, $m

Soda makers and CO2 cylinders Consumables

Other Consumables as a % of total revenue

300 55.6%
55.4%
250 55.2%
55.0%
Revenue ($m)

200
54.8%
150 54.6%
54.4%
100 54.2%
50 54.0%
53.8%
0 53.6%
2010 2011 2012

SOURCE: SodaStream 2012 Form 20-F MARKETLINE

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As evidenced in figure 8, revenue accrued from the sale of consumable products has been rising steadily alongside the
companys soda maker revenues.

In fact, SodaStream has seen notable success in the US in terms of its consumable products. According to SodaStream,
unit sales of its syrups in Q1 2013 increased 119% as compared to the same period in the previous year. This compares
to growth of 78% for soda makers over the same period.

This is an encouraging sign for the company: it is suggestive of recurring utilization of its soda makers, which will in turn
lead to greater profitability. However, the company needs to continue to promote its machines in order to maximize its
customer base within the US if it is to have a substantial impact on the carbonated soft drinks market as a whole.

Profitability is increasing
As evidenced in Figure 6, SodaStreams bottom line has been expanding at the same time as its revenues, growing by
117.8% in 2011 and 59.6% in 2012. What is perhaps more notable, however, is the fact that the companys profit margin
has risen dramatically since 2008.

In fact, with the exception of 2010, the company has grown its profit margin year-on-year from just 0.5% in 2008 to 10.1%
in 2012. Although this may not seem like much of an increase, it is indicative of the overall health of the business.
SodaStream has been able to capitalize from scale economies as it has grown its business exponentially in the past five
years.

As SodaStreams footprint grows in the US, and it becomes a more mature market for the company, it should see its
bottom line further increase as sales begin to shift further in favor of higher margin consumable products. Therefore, if
SodaStream does manage to continue to bolster its expansion, it should naturally become more profitable in the US,
which could make it an attractive acquisition target for incumbents struggling to maintain profitability in the midst of tough
market conditions.

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CONCLUSIONS
SodaStream has seen tremendous growth, but is yet to fulfill
its potential
There is no doubt that the SodaStream brand has experienced something of a renaissance over the past five years.
Indeed, the key aspect of the companys effective re-launch has been its ostensible challenge to the traditional soda
market, with which incumbents Coca-Cola and Pepsi are synonymous. SodaStreams entry into the US not only has the
potential to disrupt the market, but also places the company in direct competition with such established giants.

The US is clearly a huge market, and any prospective challenger must target the country if it is to become even a fraction
as successful as the leading players. The countrys high soda consumption per capita makes it an attractive prospect for
budding soda companies and established players alike. However, the market has received bad press in recent years,
related to health and environmental concerns, which may diminish its attractiveness to traditional soda companies.

Evidently, SodaStream has undertaken something of a transformation since its heyday in the 1970s and 1980s, when it
had a distinct focus on the UK. However, the company has retained its razor/razorblade business model, whereby
profitability is bolstered by the on-going sales of higher margin consumable products subsequent to the initial sale of a
soda maker. In order to enjoy long-term success in the US, it must not only sell enough machines, but also promote the
on-going utilization of them in order to continue its revenue stream.

SodaStreams focus on the environmentally friendly nature of its product has meant that it has been able to effectively
challenge the notion of the traditional soda markets distribution channel. This is clearly a key aspect of the companys
strategy, and is wholly evident in its marketing and advertising campaigns. Its key differentiator has now become more
than just a novelty: it is being billed as a means for consumers to consume soda in an environmentally friendly way,
lessening the impact of plastic bottles. This is an area that Coca-Cola and Pepsi have started to target in the face of
criticism and waning soda sales in the US. Furthermore, SodaStreams emphasis on the level of choice between different
flavors and types of soda available through its machines has meant that the company has been able to promote itself as
a healthier alternative to traditional soda.

In order to cement the SodaStream as an essential kitchen appliance, rather than a fun gadget, the company has also
made attempts to promote the longevity of its machines through a number of strategic partnerships. By offering well-
known soft drink brands and flavors in the form of consumables, the company has attempted to show that beverages
made using SodaStream can, in fact, be a viable alternative to traditional consumption. Additionally, partnerships with
Samsung and designer Yves Behar mark SodaStreams attempt to premiumize its brand, encouraging consumers to
make its machines a mainstay of their kitchens in order to promote long-term use. This is key to the companys
profitability moving forward.

In turn, the company has experienced a dramatic surge in revenues since its re-launch, and the Americas now accounts
for over a third of its turnover. In addition to this, the companys bottom line has also been expanding, and its net profit
margin has increased dramatically since 2008 as sales of consumables continue to grow.

The result of SodaStreams recent financial success is that it is now well and truly on Coca-Cola and Pepsis radar, if only
as a small blip at present. The company has the potential to continue to expand in the US, and has made a good start in
its entry into the market. If it is able to maintain its momentum, its effect on the traditional soda market will be
compounded, and it will pose a much greater risk to the markets gigantic incumbents. It is no surprise, therefore, that
both Coca-Cola and Pepsi have been linked with potential take-over bids, and an acquisition at this stage could prove to
be an astute damage control measure, as both companies look to safeguard their future operations.

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APPENDIX
Definitions
bisphenol A (BPA) A compound found in plastic packaging that has been linked to a number of adverse health effects,
such as cardiovascular problems, diabetes and infertility.

For the purposes of this report, the global market consists of North America, South America, Western Europe, Eastern
Europe, MEA, and Asia-Pacific.

North America consists of Canada, Mexico, and the United States.

South America comprises Argentina, Brazil, Colombia, and Venezuela.

Western Europe comprises Austria, Belgium, Denmark, France, Finland, Germany, Greece, Italy, Ireland, the
Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, and the United Kingdom.

Eastern Europe comprises the Czech Republic, Hungary, Poland, Romania, Russia, and Turkey.

Asia-Pacific comprises Australia, China, Hong Kong, India, Indonesia, Japan, Malaysia, New Zealand, Philippines,
Singapore, South Korea, Taiwan, Thailand, and Vietnam.

Middle East-Africa (MEA) comprises Nigeria, Saudi Arabia, South Africa, and United Arab Emirates.

Sources
Global Carbonated Soft Drinks, MarketLine Industry Profile, February 2013

United States Carbonated Soft Drinks, MarketLine Industry Profile, February 2013

SodaStream: Form 20F for the period December 31, 2012

http://app.quotemedia.com/data/downloadFiling?webmasterId=101533&ref=8859767&type=PDF&symbol=SODA&compa
nyName=SodaStream+International+Ltd.&formType=20-
F&formDescription=Annual+and+transition+report+of+foreign+private+issuers+under+sections+13+or+15%28d%29&dat
eFiled=2013-04-16

MSN Money: PepsiCo, Coca-Cola raise prices to boost profits

http://money.msn.com/now/post.aspx?post=bf8d8174-ae58-4d2f-aa98-069e9a1b6ded

TIME: Sugary Beverages Linked to 180,000 Deaths Worldwide

http://healthland.time.com/2013/03/20/sugary-beverages-linked-to-deaths-worldwide/

CNN: Large sugary drinks flow in NYC as officials appeal ruling

http://edition.cnn.com/2013/03/12/us/new-york-large-soda-ban/index.html

UK Competition Commission: Carbonated drinks: a report on the supply by manufacturers of carbonated drinks in the
United Kingdom

http://www.competition-commission.org.uk/rep_pub/reports/1991/fulltext/309c9.pdf

SodaStream: Fortissimo Capital Fund acquires controlling interest in SodaStream

http://www.sodastream.com/fortissimo-acquires-sodastream-pr

Bloomberg Businessweek: SodaStream raises $109.5M in IPO

http://www.businessweek.com/ap/financialnews/D9J8NO8O2.htm

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The Guardian: Sodastream pumps up the nostalgia for British relaunch

http://www.guardian.co.uk/media/2010/jul/09/sodastream-nostalgia-british-relaunch

Alex Sexton/SodaStream/Lancaster University: Soft Drinks: Hard on the Environment

http://www.sodastream.co.uk/gbretail/softdrinksreport.pdf

The New York Times: The Race to Greener Bottles Could Be Long

http://www.nytimes.com/2011/12/16/business/energy-environment/coca-cola-and-pepsico-race-for-greener-
bottles.html?_r=0

Forbes: Even With Record Prices, Expect A $10 Million Super Bowl Ad Soon

http://www.forbes.com/sites/alexkonrad/2013/02/02/even-with-record-prices-10-million-spot/

ESPN: Super Bowl just shy of TV record

http://espn.go.com/nfl/playoffs/2012/story/_/id/8913211/2013-super-bowl-falls-short-television-ratings-record

Adage: CBS Tells SodaStream to Revise Brand-Bashing Super Bowl Spot

http://adage.com/article/special-report-super-bowl/cbs-tells-sodastream-revise-brand-bashing-super-bowl-spot/239434/

SodaStream/YouTube: Game Day 2013 Commercial: The Unaired SodaStream Ad

http://www.youtube.com/watch?v=68al-o2XSpE

SodaStream: Drinking Healthier this New Year

http://www.sodastream.com/thenewyou/sodastreamsyrups/drinkinghealthier

PEPSICO: U.S. Brands Shopping List

http://www.pepsico.com/download/USBrands_Shopping_List.pdf

Strategy Peak: Steal Cokes Pricing Strategy Based on Value Created Instead of Quantity Sold

http://strategypeak.com/how-to-price-based-on-value-created-instead-of-quantity-sold/

SodaStream: SodaStream Source

http://sodastreamsource.com/

Channel 4: Stephen Frys 100 Greatest Gadgets

http://www.channel4.com/programmes/stephen-frys-100-greatest-gadgets/articles/the-list#92

Metro: Top 10 funky kitchen gadgets

http://metro.co.uk/2012/11/19/top-10-funky-kitchen-gadgets-501183/

Samsung Electronics Co., Ltd.: SAMSUNG and SodaStream Announce the First-Ever Four-Door Refrigerator with
Sparkling Water Dispenser

http://www.samsung.com/us/news/20369

SodaStream: SodaStream Reports Record First Quarter Results

http://sodastream.investorroom.com/2013-05-08-SodaStream-Reports-Record-First-Quarter-Results

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Further Reading
SodaStream International Ltd., MarketLine Company Profile, March 2013

The Coca-Cola Company, MarketLine Company Profile, September 2012

PepsiCo, Inc., MarketLine Company Profile, January 2013

Global Carbonated Soft Drinks, MarketLine Industry Profile, February 2013

United States Carbonated Soft Drinks, MarketLine Industry Profile, February 2013

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