Caleb Bryant
Caleb Bryant is a Senior Drink Analyst at Mintel, specializing in changing consumer attitudes, industry news and beverage trends.

PepsiCo has announced it will purchase the Israeli-based at-home sparkling beverage company SodaStream International for $3.2 billion. The deal allows PepsiCo to become an even bigger player in the global sparkling water market. However, the long-term value of the acquisition will likely depend on if PepsiCo can successfully build sales of the SodaStream flavored concentrates.

The deal represents PepsiCo’s current strategic growth plan of brand diversification, a plan established by outgoing CEO Indra Nooyi. Sales of PepsiCo’s signature carbonated soft drink (CSD) brands have fallen at a faster rate than its main competitor Coca-Cola as consumers switch from CSDs to more healthful beverages.  In response to changing consumer preferences, PepsiCo has been diversifying its beverage portfolio with more health-focused options through internal product development (eg bubly), brand acquisitions (eg Kevita) and by creating new healthful varieties within existing brands (eg Gatorade Zero).

The SodaStream acquisition makes PepsiCo an even larger player in the fast-growing and highly competitive sparkling water market as the massive beverage company benefits from SodaStream’s existing brand recognition and global footprint (Western Europe is SodaStream’s largest market). PepsiCo now has the ability to capture sparkling water consumers that may have concerns ranging from the environmental impact of packaging to a perceived poor value compared to sparkling water they can make themselves. The deal could also greatly increase SodaStream’s presence in the US market.

Real growth for PepsiCo may not come from sales of the SodaStream itself but rather in the sales of the SodaStream flavored concentrates. SodaStream-compatible, Pepsi-branded concentrates are already available and now Pepsi will receive all sales of SodaStream branded flavor concentrates. The $3.2 billion price tag paid for the company will likely only be worth it if Pepsi can build sales of these concentrates. Pepsi may expand the flavor concentrate portfolio to include all Pepsi-owned brands such as Mountain Dew, Tropicana and even bubly.

However, PepsiCo may not be able to rely on concentrate sales; SodaStream users often drink the sparkling water as is, without using flavors. Also, SodaStream is marketed to consumers who want to reduce their CSD consumption, meaning the average SodaStream owner may not be interested in making their own Pepsi at home—especially considering it is more convenient to just open up a can of Pepsi.

The acquisition could allow PepsiCo to expand its Drinkfinity brand. Drinkfinity is a pod-based water enhancer concentrate made with real ingredients (Drinkfinity requires the customer to purchase a special water bottle compatible with the Drikfinity pods). The healthful positioning of Drinkfinity may appeal to SodaStream buyers and allows PepsiCo to increase brand awareness of its unique water enhancer brand.

Key takeaways

PepsiCo’s SodaStream acquisition allows the company to capture another segment of the growing sparkling water market and aligns with PepsiCo’s overall goal of brand diversification. However, time will tell if the price paid for the company was justified; this will likely depend on if PepsiCo is able to build sales of its beverage concentrates and if consumers believe that buying a sparkling water maker is a greater value than simply buying packaged sparkling water.