Emerging brand mania sweeping CPG
Emerging brands are all the rage. Retailers are eager to identify emerging brands and offer them to shoppers while top line challenged consumer goods companies looking for growth are on the hunt for deals. The latest example of the latter, PepsiCo’s acquisition of SodaStream, says a lot about the state of the CPG industry’s established players and the high cost of making up for lost ground in the emerging brand landscape.
PepsiCo said it would pay $144 a share for Israel-based SodaStream in a deal valued at $3.2 billion. SodaStream had annual revenue of $543 million in its most recent fiscal year. The per share price represented a premium of 11 percent from the closing price on Friday, Aug. 17, however the companies said the $144 price represented a 32 percent premium to SodaStream’s 30-day volume weighted average price. The company’s stock price increased considerably from $87 on Aug. 1 when the company released second quarter results that SodaStream CEO Daniel Birnbaum said was the most successful quarterly period in the company’s history. He highlighted unit growth of sparkling water makers which increased 22 percent and surpassed the one million mark. The unit growth of devices is key to SodaStream’s business model and an indicator of future sales and profits since the company generates 60 percent of its revenues from recurring sales of higher margin consumable products such as CO2 refills, flavors and carbonation bottles that let users of its system make carbonated beverages at home.
Conversely, the financial performance of PepsiCo’s North American beverage business has deteriorated and the company is among those under pressure from food and environmental activists targeting producers of products that contain sugar and are packaged in plastic. During the first six months of the year, PepsiCo’s beverage division sales declined 1 percent to $9.6 billion and operating profits declined 18 percent to $1.1 billion. It was the worst financial performance of the company’s six reporting segments and a continuation of the prior year trend. In 2017, beverage division revenues declined 2 percent to $20.9 billion and operating profits fell 9 percent to $2.7 billion.
How much of PepsiCo’s pain was caused by SodaStream’s gain isn’t clear. However, by acquiring SodaStream, PepsiCo takes out a competitor whose value proposition as a more sustainable and healthy alternative to sugary carbonated beverages was a direct attack on traditional carbonated beverage companies.
"PepsiCo and SodaStream are an inspired match," said PepsiCo Chairman and CEO Indra Nooyi. "Daniel and his leadership team have built an extraordinary company that is offering consumers the ability to make great-tasting beverages while reducing the amount of waste generated. That focus is well-aligned with Performance with Purpose, our philosophy of making more nutritious products while limiting our environmental footprint. Together, we can advance our shared vision of a healthier, more-sustainable planet."
SodaStream CEO Birnbaum said the acquisition by PepsiCo was a validation of the company’s mission to bring healthy, convenient and environmentally friendly beverage solutions to consumers around the world.
“We are honored to be chosen as PepsiCo's beachhead for at home preparation to empower consumers around the world with additional choices,” Birnbaum said. “I am excited our team will have access to PepsiCo's vast capabilities and resources to take us to the next level. This is great news for our consumers, employees and retail partners worldwide."