Soda Stream-Project 21 PDF

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Analysis of Sodastream...

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“Get Bizzy With the Fizzy”

History & Strategy SodaStream is an Israel-based manufacturing company, founded in the UK in 1903, with headquarters in Israel. They are the world’s leading manufacturer and distributor of home sparkling water makers, which transforms ordinary tap water into sparkling water by using carbon. They focus on being environmentally friendly and cost-effective, as well as promoting health and wellness.

SodaStream’s current strategy is based upon innovation. Innovation comes from the fact that they were the first to make a machine for home carbonation of water, and early on became the market leader. Their marketing strategy is, amongst other things, based upon the “buyin/follow-on” business model that they have. This means that SodaStream sells their own refill-bottles of CO2, their own reusable bottles (customized to fit their machine), and flavours with their own branding to sort of “lock-in” the customers to their brand. Also, each market where you can find SodaStream, has their own representative. That is to make sure that the different taste and preferences in each market is being taken into consideration, either if it is about flavour, availability in store or the machine itself.

Competitive Advantage To understand how SodaStream’s strategy enables the creation of competitive advantages, we will look into a couple of different analysis/models. First off, we have the PESTEL-analysis;

The PESTEL-analysis is a strategic tool to analyse the macro-environment by looking at six different factors that have an impact on the company. 1. Political Factors; For SodaStream, being an Israel-based company, there may to some extent occur controversy attached to them as a company. Political controversy is of less importance for SodaStream today than it was before, but it is still an issue that impacts their position in the market1. As well as political controversy due to location is a factor, we also have tariffs and import quotas following international relations 1 Palestinian Boycott. “SodaStream is Still Subject to Boycott”. Bdsmovement.net. https://bdsmovement.net/news/“sodastream-stillsubject-boycott” (Accessed October 21,2019)

between Israel and the host market, playing out as important political factors. If the movement of boycotting Israel has a strong presence in the host market, this can affect SodaStream’s selection of new markets as well. There are also some nations in the Middle East that to some extent refuse to do business with Israel and Israeli companies, which does not necessarily strengthen SodaStream’s position in the market2. 2. Economic factors; For SodaStream, factors such as education, inflation, living cost adjustments and interest rates in a potential or an existing market, is important. The economic cycle will impact the demand, and so on have a direct impact on the world economy, so it is important for SodaStream that the economy in the markets they already possess, is somewhat stable so they do not lose market share. 3. Social factors; If we look past the fact that some cultures and some societies might not be too excited about SodaStream because of the factors regarding them being Israeli-based and so on, their focus on health and wellness creates massive interest. People these days are starting to slowly change their habits in the process of being healthier, and carbonated water including flavour is proven to be way healthier than regular soda, as well as a lot cheaper on a per litre basis3. In 2014, SodaStream hired Scarlett Johansson as their global brand ambassador, which we believe contributes to paint a more positive, healthy and environmentally friendly image of the brand as well. 4. Technological factors; Especially transportation costs and new competitive technology are macro factors threatening SodaStream’s position today. Throughout the years, they have been able to create different products to match different target groups, as well as keeping up the large market share, despite the massive competition. It will always be necessary for SodaStream to keep up with the current technology to be able to stay ahead of their competition, as technology is such a big part of the product itself. 5. Environmental factors; SodaStream is known for being advocates for environment and good health, and factors they need to consider is for instance regulations about pollution, recycling possibilities and weather and climate change. The company currently have re-usable bottles sold with their products, and the CO2-bottle used for 2

Turck, Nancy. “The Middle East: The Arab Boycott of Israel”. Foreignaffaris.com. https://www.foreignaffairs.com/articles/middleeast/1977-04-01/middle-east-arab-boycott-israel (accessed October 21, 2019).

3 Dalek, Brian. «SodaStream: Is It Really Healthier?”. Menshealth.com. https://www.menshealth.com/weight-loss/a19537584/issodastream-healthy/ (Accessed October 21, 2019)

the carbonation is possible to take to a local SodaStream distributor and refill in-store. Regarding weather and climate, it is an important factor that clean tap-water is accessible. If the customer needs to purchase bottled water to be able to use the machine, a lot of plastic would go to waste. 6. Legal factors; Such as copyrights, patents, laws and regulations are aspects that can prevent a possible access into a market. In many countries there are places where the laws and regulations are too indefinite, and that can lead to intellectual property loss. For example, patents and laws regulating intellectual property will be important in a host market. Furthermore, discrimination and safety laws are also necessary to follow in order to maintain a safe workplace for the employees4. Moving on, we are going to analyse SodaStream’s competitive environment through Porter’s Five Forces, consisting of buyer power, supplier power, substitutes, new entry and rivalry.

Threat of substitutes is formed by the buyer’s propensity to substitute. The price which customers are willing to pay, often depends on the available substitutes. In this case, all types of soda and carbonated drinks will be so-called “indirect” competition as they serve as alternatives to the home carbonated water, without being the same product. There are also a lot of different brands producing similar home sparkling water makers today, and they are what we call “direct” competition. The threat of substitutes is absolutely present, but currently SodaStream is managing well, especially with the direct competition of similar products.

Further on we look into the threat of entry. How easy it is for new competitors to enter the market depends on several conditions; capital requirements, economies of scale, product differentiation and so on. It is expensive and capital intensive to enter the beverage market, so we can say there are high barriers of entry. SodaStream is very well established in many countries all over the world, and it is easier to choose SodaStream over other more unknown brand, due to their brand loyalty. For example, Coca-Cola bought Keurig in order to go into direct competition with SodaStream, but they failed to capture any significant market shares. 4 Bush, Thomas. « PESTLE Analysis: Legal Factors Affecting Business”. Pestleanalysis.com. https://pestleanalysis.com/legal-factors-affectingbusiness/ (Accessed October 21, 2019).

When it comes to the bargaining power of suppliers, it addresses how easily suppliers can drive up the cost of input depending on the number of suppliers, the uniqueness of the inputs and switching costs. SodaStream produce most of what they need themselves, as well as being the market leader, so it is unlikely to believe that the current suppliers would risk their position with SodaStream to gain higher cost of input. The bargaining power of supplier is weakened because there are many actors within this industry, and therefore SodaStream is less dependent on their suppliers than what the suppliers are of SodaStream.

The bargaining power of customers refers to how the customers are able to drive prices down. In SodaStream, this power is weakened due to lack of competition. There are direct competition with similar products in the market, as mentioned earlier, but SodaStream has created such brand loyalty and become a “safe choice” for the consumer, which makes it unlikely to believe that customers would try to push prices down by hyping up different brands or products. SodaStream has such a large customer base that there is no immediate threat with customers trying to push prices down.

At last, the rivalry in the industry refers to the number of competitors and their ability to undercut a company. If there are many competitors with equivalent products and services, the companies possess less power each. In this case, the direct competition is relatively low in proportion to the indirect competition (soda, soft drinks, etc.), meaning that the rivalry in the industry is quite calm.

To analyse SodaStream’s strategy further on, we will dig into their strengths , weaknesses, opportunities and threats through a SWOTanalysis. For SodaStream, their strength is their strong brand and customer loyalty, as well as being environmentally friendly. Having Scarlett Johansson as the Global Brand Ambassador also come with strengths; she is in many ways an advocate for health awareness and being environmentally friendly, as well as she is known for her work against poverty together with the organisation Oxfam. Another obvious strength is the fact that they are the world’s leading

manufacturer and distributor of home sparkling water makers, making them hard to compete against. They are also very cost-effective – the SodaStream machine is almost 30 percent cheaper on per litre basis than traditional soda. In contrary, there are also weaknesses. First of all, SodaStream has weak US demand and meet challenges in saturated markets. Their possibilities for growth in different countries is limited because of the fact that the use of the machine requires access to clean tap water, because if people need to buy bottled water to use the machines, it will probably become more costly than just buying regular sparkling water in store. Looking at the opportunities, SodaStream has a large potential within the US market, especially with the global increase in interest with being environmentally friendly and healthy. SodaStream could also look into the possibility of expanding their product line to better fit customer demand. As SodaStream recently got bought by Pepsi Co, the possibilities for growth and expansion will be even greater. When it comes to threats, new technology and changing trends will always be a factor. It is important that SodaStream is able to keep up with, and adapt to, the change in the market in the same way, or in a better way, than their competitors.

As a conclusion to these analyses of their competitive advantages and position in the market, it is safe to say that as all other companies SodaStream faces competition, but it seems as if they are handling it just right for now. They have a lot of resources and capabilities coming from their growth since the beginning and can therefore be seen as a currently strong and stable company.

Internal environment When shifting focus from the external to the internal environment, we look within the firm and our attention is on the resources and capabilities that SodaStream possess. Resources is what the firm have, including physical, financial and human assets, whereas capabilities refer to what the firm does well (Johnson et al. 2017, 98). To analyze whether SodaStream’s resources and capabilities can provide them with a basis for achieving, and sustaining, a competitive advantage, we have chosen to use VRIO-analysis. The purpose of this is to evaluate if SodaStream has resources and capabilities that are valuable, rare, inimitable and supported by the organization. Although SodaStream offers a cheaper alternative than traditional soda, the main advantage is the relative healthiness, with considerably less sugar, carbs and calories that regular canned

soda. As consumers seek to more healthier alternatives, SodaStream’s product gives value to the customers, since the product addresses what the customer trends are going towards. SodaStream itself also emphasize other value-creating factors of its product, including not having to carry heavy, always fresh sparkling water, good for the environment and the possibility of saving money (SodaStream, 2019). Hence, you can state that SodaStream’s resources and capabilities are valuable. Moving on to rarity, we refer to resources and capabilities that are possessed uniquely by one or a few numbers of organizations. The direct competition for SodaStream is limited. There have been attempts by others, like Keurig, to compete against SodaStream, but these haven’t, at least yet, put SodaStream out of balance. This suggests that the resources and capabilities SodaStream possess are rare. SodaStream has a wide range of different syrups, and also different machines, which provides the customers a lot to choose from. The third element of the VRIO-analysis is inimitability, referring to resources and capabilities that competitors either difficult and/or costly to imitate, obtain or substitute. The capabilities that SodaStream has to consistently creating new flavors of syrups, that consumers value, in a cheap and effective production, which in final provides consumers with a cheap alternative, is making it harder for potential competitors to compete against SodaStream. Although their production facilities are not inimitability in itself, the history of know-how and developed knowledge of consumers needs and production, is hard to imitate, since it consists of multiple layers. Finally, moving on to organizational support. Here it is necessary to discuss whether SodaStream is organized in the most optimal way, to exploit the resources and capabilities. With a headquarter in Lod, Israel and 13 production plants, SodaStream is dependent on that their structure support and facilitate their exploitation. SodaStream’s resources and capabilities can be defined as valuable, rare and inimitable, to a certain extent, and it seems like they have taken advantage of this by the way they are organized. However, they still have huge market potentials, which they haven’t yet managed to fully exploit. Lack of organizational support may be one explaining factor of this, in combination of numerous other reasons. To sum it up, there are several aspects that emphasize that their resources and capabilities are a strong basis for long-term competitive advantage. Their core competences, what they do the best, is meeting customer needs and trends, both in developing new products and features, but also adapting its marketing to address current trends and needs in the market. A reason for their competitiveness can also be explained with the fact that their capabilities is dynamic,

meaning that SodaStream renew and recreate their resources and capabilities, to meet the needs of changes in the environments. However, SodaStream has still a lot of potential market Country

Households

Market

GDP per

(1000)

penetration (% of

capita

households)

(USD)

US

117 538

1%

62 641

Germany

40 076

3%

48 195

UK

26 473

1%

42 491

France

25 253

4%

41 463

Italy

23 848

1%

34 318

shares to capture, which emphasize the need for continuous development of resources and capabilities. Analyse of Potential Markets To analyse potential markets to grow within or enter, we have chosen the following criteria for further evaluation; number of households, market penetration, gross domestic product (GDP) per capita and water safety. France, Germany, Italy, the US and the UK emerges as good potential markets to further expand within, and this is because SodaStream has a relatively low market penetration in these markets today. In general, these countries are developed countries where we can assume (in lack of reliable sources) that it is safe to drink the tap water, meaning that the households in these countries should be able to use the SodaStream sparkling water maker. GDP per capita as a measure can somewhat describe the buying power of the consumers and is therefore linked with market size and market penetration to evaluate potential growth. Based on this information we have decided to range our choice for further expand in the following order: 1. The US* 2. Germany 3. France That is because they have the combination of some market penetration and therefore higher potential for growth than in a market where SodaStream has not yet entered. The consumers in these markets also potentially have higher buying power following the high GDP per capita.

Bibliography: Books Gerry Johnson, Richard Whittington, Kevan Scholes, Duncan Angwin, Patrick Regnér. 2017. Exploring Strategy. 11th ed. Edinburgh Gate: Pearson Education Limited SodaStream. 2019. “Om Sodastream”. Accessed on Oct. 21 2019. https://sodastream.no/om-sodastream/...