Why is Pepsi 'Getting Busy with the Fizzy'?
Are re-framing, health concerns and sustainability issues leading Pepsi to go back to the 80s or is this the start of a new model?
OK, I admit it, I'm of a 'certain age' - a child of the 80's. For me the words Sodastream conjure up magical images in the same way as Slush Puppy (who knew raspberries weren't actually blue?!) , Evil Knievel toys and Atari games. This was a new dawn; the ability to make your own fizzy drinks at home!
We nagged and nagged to get one but my parents never relented so imagine my delight when my Auntie bought one - it became an instant hit even though the experience never quite matched the promise! The Cola just didn't taste like Coke and was more like one of the many cheap imitations around in those days (the Peter Kay Rola Cola sketch comes to mind!) but somehow we still kept going back for more.
Like the Breville toastie maker, the Sodastream gradually disappeared from kitchens all over the UK and as tastes have changed all kinds of gadgets have taken their place from the Nutri-bullet to Nespresso. Yet quietly in the background, Sodastream has been on something of a recovery with global sales rising from $289m in 2011 to just under $545m in 2017. Shares skyrocketed in early August on the back of better than expected results and today Pepsi announced they were to buy the Israeli based drinks company in a cash deal of $3.2bn - that's quite some turnaround!
So what has prompted the fizzy drinks giant to splash the cash on an 80's icon? Well the consumer numbers behind Sodastream's best ever quarter are impressive; a 22% rise in machine sales and a 17% rise in gas refills show that consumers are not only buying into the proposition, they are continuing to use it.
Three key trends appear to underpin this resurgence. Firstly, as sugary drinks are under pressure as a category as consumers are increasingly aware of health concerns and the regulatory environment harshens e.g. the UK 'Sugar Tax'. Manufacturers have desperately been looking for ways both to re-formulate their recipes and also reduce can sizes in a bid to escape the tax levies but the impact on consumer shopping habits has still be marked. The Grocer reported that sales of low sugar variants and bottled water rose by 15% and 18% respectively in the two weeks after the introduction of the sugar tax whereas sugary drink sales were down 11% year on year in the same period.
Secondly, if that wasn't enough we are now more aware than ever of the issues caused by single use packaging, creating even more pressure for the soft drinks industry. Research conducted by Deep Blue Thinking with Populus has shown that over 8 in 10 consumers are now aware of this issue, way ahead of other environmental hot topics such as diesel engines and palm oil. With ever more activity in this space (e.g. the recent Greenpeace campaign on straws), this has become an issue soft drinks companies simply must do something about. Coca Cola has made some symbolic gestures in this arena through initiatives like the reverse vending machine but PepsiCo have certainly put their money where their mouth is.
Finally, the at home model allows Pepsi to re-frame the category. In his excellent book, The Choice Factory, Richard Shotton talks about the impact of framing with regard to the Nespresso machine. With the convenience and experience of an in home machine, we compare the price to a barista made coffee rather than instant. How else could they convince us to pay the equivalent of £34 for a 454g bag?! The web is full of articles making price comparisons between Sodastream and buying branded bottles (e.g.https://www.thesimpledollar.com/does-sodastream-save-money/) .
UK estimates from The Guardian estimate consumers will spend between 21p per litre for water to 66p for flavoured fizzy drinks. This might not be the re-framing to the same extent as Nespresso but, in a category where growth is under pressure, anything which can sustain revenues has to be attractive.
However, whilst these three forces have come together to drive a bold acquisition, it's also worth considering some of the longer term trends Pepsi is may be able to capitalise on too. FMCG brands have long sought to build a more ongoing relationship with us and Sodastream enables Pepsi to have a continuous presence in the home. When combined with our desire for experiences (is voice really easier as a UI or just a more fun interaction?!) this acquisition also opens up the potential for subscription models to create the kind of 'lock in' most packaged goods companies can only dream about.
Only time will tell if we'll all get Busy with the Fizzy again or whether the bubble will burst...