Pepsi is making a $3.2 billion bet on an unconventional sparkling-water brand as Americans ditch soda (PEP)

pulse

August 20, 2018 3:27 PM

PepsiCo is acquiring SodaStream for $3.2 billion, the company announced on Monday. The deal comes at a time when Americans are moving away from traditional, sugary soda.

SodaStream is a company that sells machines that carbonate water, as well as syrups used to flavor the resulting beverages.
The deal comes at a time when Americans are moving away from drinking traditional, sugary sodas.

PepsiCo is making a $3.2 billion bet on sparkling water.

On Monday, the snack-and-beverage giant announced plans to purchase sparkling-water brand SodaStream for $3.2 billion. Unlike most beverage brands owned by PepsiCo, however, SodaStream sells machines that carbonate water as well as syrups that can be added to create different beverages, including flavored water, sodas, and energy drinks.

The deal marks yet another step in PepsiCo's journey to diversify its portfolio as it moves away from its identity as a soda giant. By 2016, less than 25% of PepsiCo's sales were from soda, thanks in large part to soon-to-be-former CEO Indra Nooyi's emphasis on more nutritious products.

One of the areas that PepsiCo has invested in is bottled water.

In late 2016, PepsiCo launched LIFEWTR, kicking off the debut of the premium brand with a commercial at the 2017 Super Bowl — an unprecedented launch for a bottled-water brand. Earlier in 2018, the beverage giant launched bubly, a sparkling-water brand that Credit Suisse estimates could exceed $100 million in retail sales in 2018.

The growing emphasis on bottled water is in line with what shoppers are demanding. Sales of Pepsi declined 4.5% by volume in the United States in 2017, according to Beverage Digest's annual report. Meanwhile, PepsiCo-owned water brand Aquafina increased 2.6% by volume.

SodaStream represents a different type of opportunity in the sparkling-water business, as the brand sells carbonating machines and related products instead of cans or bottles.

"SodaStream allows consumers to customize their own beverages to create not only flavors — but potentially sugar levels — to suit their needs, helping PepsiCo better meet consumer's needs for products which are not only healthier but do not compromise on taste," Melanie Felgate, a senior consumer insights analyst at data and analytics company GlobalData, said in a note on Monday.

"Furthermore as the environmental burden of plastic waste comes to the fore, the concept can also tackle this by reducing reliance on plastic bottles," Felgate continued. "This is likely to attract the 35% of consumers globally surveyed by GlobalData in Q3 2018 who claim they would buy more of specific types of products if they were 'packaged without any plastic at all.'"

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