Wake Up Coke and Pepsi: SodaStream Is Declaring a Cola WarThe Coca-Cola recipe has been locked away for over a century. Could a future decision by Coke to place the secret recipe in customers’ homes help it defeat emerging rival SodaStream?

SodaStream, a manufacturer of home carbonation machines that allows consumers to make their own bubbly beverages, holds the key to overturning industry giants like Coca-Cola and PepsiCo. Their drink-making device combines tap water, flavored syrup, and carbon dioxide gas in a reusable bottle that’s threatening industry leaders. Should the big players prepare for battle?

Although at-home soda production began in 1903, SodaStream machines did not begin to sell their product across Europe until the 1920s. In fact, it wasn’t until the company went public on the NASDAQ in 2010 that SodaStream began to get a following in the United States.

Just a year after SodaStream went public, the Israeli company’s market cap rose from $367 million to $1.46 billion. That same year, SodaStream had products placed in 45,000 stores globally, including 7,000 retail locations in the United States. The bubbly beverage-maker is now in retail giants including Costco, Wal-Mart, Target, and Bed Bath & Beyond, among others. Their U.S. sales jumped from $4.4 million in 2007 to $40 million in 2011, with revenue doubling in each of the last three years.

Despite the massive growth, CNN Money reports SodaStream only has one percent or so of the U.S. market. Worldwide, SodaStream revealed it generated approximately $562 million in revenue last year. Analysts believe that unless the company increases its global household sales volume, it could be approaching maturity. The global beverage market is one of the most competitive ones. Here are a few of SodaStream’s competitive advantages disturbing the sleep of industry giants:

It’s Way Cheaper!

SodaStream has a serious competitive edge compared to other bubbly brands because it’s substantially cheaper than buying pre-packaged soda. Depending on the brand or store’s price, a 2-liter bottle of soda can cost anywhere between $1.39 to $1.79. On the other hand, SodaStream’s 60-liter canister of carbon dioxide costs around $15. To put things into perspective, buying pre-packaged soda costs around $0.80 per liter, while making a liter of soda with SodaStream costs around $0.25 per liter, that’s a savings of nearly 70 percent per liter! However, just like buying a coffee or espresso machine, there’s an initial investment cost. For SodaStream, the initial cost is buying a machine priced anywhere between $80 and $100.

After that, the cost of syrup is significantly less than purchasing soda at the store. How quickly consumers get a return on investment depends on how much soda they consume. Even for the casual soda drinker, SodaStream will ultimately be a cheaper alternative for the long term. The company knows that a smart pricing strategy makes things increasingly competitive, while helping consumers to save more money.

It’s Healthier Choice!

In the past, the American Food and Drug Administration (FDA) as well as food watchdogs in Europe ruled that caramel coloring agent 4-methylimidazole (4-MI) chemical poses no threat to consumers’ health. Recently health authorities in California added Coca-Cola and PepsiCo drinks on a list of cancer-causing agents because 4-MI. In the US, brand favorites like Goya Malta and Pepsi One would have required a cancer warning on products because they contain greater levels of 4-methylimidazole.

In addition, a 2012 Institute of Medicine report states that sugary drinks also are a major contributor to obesity in the US. SodaStream gains a huge competitive advantage in the US market because they use low calorie sugar alternatives like Splenda or Stevia, while beverage giants Coca-Cola and PepsiCo face increasing pressure regarding obesity and other health impacts from their ingredient choices. SodaStream has 65 percent fewer calories per 8oz. than name-brand sodas, with SodaStream at 35 calories per 8 oz. vs. name-brand sodas at 100 calories per 8 oz.

But the health advantage comes with a trade off. Before making the switch, consumers want to know if SodaStream will taste the same as pre-packaged sodas. While it’s subjective, most likely SodaStream won’t taste exactly the same as pre-packaged sodas. The difference could be obvious since SodaStream drinks have a slight aftertaste, but it’s not very different from name-brand sodas.

It’s Eco-Friendly!

Americans’ daily usage of plastic bottles has been a concern for years, considering Americans throw away about 28 billion bottles and jars every year according to the U.S.Environmental Protection Agency.

That is a selling point for SodaStream because it works with reusable glass or plastic bottles. The product helps reduce the consumption of plastic bottles, aluminum cans, and glass bottles since it leaves virtually no waste behind. One SodaStream carbonator makes between 60 to 110 liters, which are served in reusable bottles, equivalent to 170 or 310 aluminum cans.

SodaStream’s Chief Executive Officer Daniel Birnbaum told Forbes that 50 years ago we weren’t drinking out of plastic bottles and 50 years from now we won’t be drinking out of plastic bottles either. SodaStream’s goal is to encourage 20 percent of American households to stop using plastic bottles. “Our goal is to speed up the process,” said Birnbaum.

SodaStream’s Target Audience

If the at-home soda maker wants to revolutionize the beverage industry and eliminate plastic and aluminum waste, then it’s only fitting that they appeal to the masses, especially families with smaller children. But old habits die hard. The task SodaStream faces to motivate consumers to stop buying pre-packaged sodas isn’t easy. They’ll have to appeal to a specific set of consumers first. Here are the main groups:

The Health-conscious

A 2012 Deloitte study with 93 top food and beverage executives revealed that “health and nutrition” is the number one key issue driving the food and beverage industry forward. Consumers are choosing healthier alternatives and this health trend seems to be here to stay. As odd as it might sound, the future of the bubbly-beverage industry will likely depend on healthier drinkers.

SodaStream claims their sodas have one-third of the sugar, calories, and carbohydrates of their rivals. These stats matter to the health conscious consumer.

Environmentalists

There are few more passionate groups to have as customers than tree-huggers. SodaStream is not only trying to grab the health-conscious, but those opting for more environmentally-friendly products.

Green consumers could adopt the idea of purchasing SodaStream to both drink soda and save the world one bottle at a time. Americans alone toss away billions of bottles and cans that end up clogging landfills every year. SodaStream puts it this way: By using your own carbonation system, there will be “less packaging waste from cans and bottles and less pollution caused by transport of bottled beverages.”

Skinnygirls

In February 2014, SodaStream announced a strategic agreement with Bethenny Frankel’s Skinnygirls, a brand that targets health-conscious women with low-calorie alcoholic drinks including wine, margaritas, and ready-to-serve cocktails.

Kristin Harp, US Marketing Manager for SodaStream, says SodaStream’s target audience are moms between the ages of 25 to 54 who have an affinity for carbonated beverages, which already comprise 40 to 50 percent ofSodaStream’s Facebook followers.

SodaStream’s first-ever global brand ambassador, Scarlett Johansson, was featured in the company’s 2014 Super Bowl ad appealing to “skinny girls” and men alike. The commercial confirms that SodaStream is ready to play like the big boys do.

Do-It-Yourself

With a resurgence of the Do-It-Yourself (DIY) movement, it makes sense that this growing consumer segment is a target for an at-home soda maker. However, not much is known about this segment. What it is known is that there are various reasons for wanting to do-it-yourself. Effects from the US recession drives people to do things themselves since it’s typically less expensive than buying brand-name products.

Also, Millennials seem to have a passion to create and not just consume. In fact, a recent study found that 38 percent of Americans, between the ages of 25 and 34, completed or considered a DIY project in the last year. SodaStream can target this younger audience and even market the machine as a great asset for parties and other social events.

The Competition

Although SodaStream may not be a direct competitor of Coca-Cola or PepsiCo, as a substitute product it could still hurt them. That said, Coca-Cola and PepsiCo are by no means backing away from a challenger disrupting their space. Coca-Cola made the first strategic move by spending $1.25 billion to buy a 10 percent stake of Keurig-maker Green Mountain Coffee, which is planning to introduce a new at-home soda machine.

There are also rumors that PepsiCo and SodaStream could partner up as a counterattack to Coca-Cola’s latest move. Financial analysts argue that SodaStream can’t compete with the two beverage giants because of various competitive advantages, including global brand recognition and powerful distribution networks.

SodaStream might be fit fight, but will they win the Cola war? It’ll be interesting to see the trends and competitive strategies of this soda warfare.