FINAL - SodaStream - External and Internal Environment Analysis

Mr.
Kevin James
SodaStream External and Internal Analysis
Vancouver, BC
September 30, 2014
SodaStream International Limited

External and Internal Analysis
Vancouver, BC
Submitted to:
Mr. Kevin James

Vancouver, BC
Submitted by:
Hideyo Matsufuji 100079844
September 30, 2014
Course Number: BUSM 4200 Section 001

Hideyo Matsufuji 100079844
Executive Summary
This analytical report was prepared for SodaStream International Limited to help them
understand the business dynamics of the US market where the US branch of
SodaStream is competing and to discover SodaStreams core competencies. Both
external general environment and industry analyses were carried out, as well as internal
competitive advantage analysis and supply chain analysis. These analyses are
important to allow SodaStream to face competition with not only Coke, PepsiCo, and Dr.
Pepper Snapple Company in the carbonated soft drink industry, but also new
competitors in home carbonator industry.
Overall, the general environment provides a favourable setting for SodaStreams

operations. The political, cultural, technological, and demographic segments of the
general environment in the United States are generally favourable to SodaStreams
business plans and present a number of potential growth and cost reduction possibilities
for SodaStreams operations. The analysis of the economic and global segments
identified a number of potential short, medium, and long-term threats to SodaStreams
operations, and these threats will need to be addressed with appropriate risk
management practices.
From the industry level analysis of the external environment, the barrier to new entrants
was determined to be moderate, the threat from suppliers and buyers to be low, the
threat of substitution to be high and the intensity of rivalry between competitors to be
moderate. The overall industry therefore considered moderately favourable for
SodaStream.
The internal analyses used were Competitive Advantage Analysis and Porters Value
Chain Analysis. These analyses found the following core competencies and/or
competitive advantages:
1. The proprietary CO2 cylinder design and in-house exclusive development of the
technology.
2. Sophisticated marketing planning and implementation.
3. Distribution.
The weaknesses identified by the value chain analysis are:
1. Follow-up services and warranties

2. Human resources and staffing
3. Potential political instability in their main theatre of operations and manufacturing

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TABLE OF CONTENTS
Page
EXECUTIVE SUMMARY ........................................................................................................... ii
1.0 INTRODUCTION ............................................................................................................... 1
2.0 GENERAL EXTERNAL ENVIRONMENT .......................................................................... 1

2.1 Political/Legal Factors Opportunity ......................................................................... 1
2.2 Economic Factors Threat and Opportunity ............................................................. 3
2.3 Socio-Cultural Factors Opportunity ........................................................................ 3
2.4 Technological Factors Opportunity ......................................................................... 4
2.5 Demographic Factors Opportunity.......................................................................... 5
2.6 Global Factors Threat ............................................................................................ 5
2.7 General Environment Analysis Summary Opportunity ............................................ 6
2.8 Industry Analysis Five Forces Model ...................................................................... 6
2.8.1 Threat of New Entrants Low Threat ............................................................ 6
2.8.2 Bargaining Power of Suppliers Low Threat ................................................. 7
2.8.3 Bargaining Power of Buyers Moderate and Low Threat .............................. 7
2.8.4 Threat of Substitute Products High Threat .................................................. 8
2.8.5 Intensity of Rivalry Among Competitors Moderate Threat ........................... 8
2.8.6 Overall Industry Analysis Conclusion Attractive Industry ............................ 9
3.0 INTERNAL ENVIRONMENT ............................................................................................. 9

3.1 Competitive Advantage ............................................................................................. 9
3.1.1 Distribution Network .................................................................................... 10
3.1.2 CO2 Cylinder Recycling Network ................................................................. 10
3.1.3 Proprietary Technology ............................................................................... 10
3.1.4 Marketing .................................................................................................... 10
3.1.5 Expansion Expertise .................................................................................... 11
3.1.6 Partnership Expertise .................................................................................. 11
3.1.7 Core Competencies ..................................................................................... 11
3.2 Porters Value Chain ............................................................................................... 11
3.2.1 Value Chain Activities Supply Chain Management ................................... 12
3.2.2 Value Chain Activities Operations, ........................................................... 12
3.2.3 Value Chain Activities Distribution ............................................................ 12
3.2.4 Value Chain Activities Marketing .............................................................. 13
3.2.5 Value Chain Activities Follow-up Service .................................................. 13
3.2.6 Support Functions Finance ....................................................................... 13
3.2.7 Support Functions Human Resources ...................................................... 14
3.2.8 Support Functions Management Information Systems.............................. 14
4.0 SUMMARY ...................................................................................................................... 14
LIST OF TABLES
Table 1: Criteria of Sustainable Competitive Advantage ............................................................. 9

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TABLE OF CONTENTS
Page
LIST OF APPENDICES
APPENDIX A GENERAL ENVIRONMENT ANALYSIS BRAINSTORMING

APPENDIX B INDUSTRY ANALYSIS: THREAT OF NEW ENTRANTS
APPENDIX C INTENSITY OF RIVALRY AMONG COMPETITORS ANALYSIS
APPENDIX D COMPETITIVE ADVANTAGE SUBCOMPONENT ANALYSIS
APPENDIX E PORTERS VALUE CHAIN ANALYSIS

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1.0 INTRODUCTION1
This report presents an external and internal analysis of SodaStream International
Limited (SodaStream), headquartered in Israel. SodaStream operates in the beverage
industry as a home carbonation company (HC), a subset of the carbonated soft drink
industry (CSD). SodaStream uses a razor and razor blade where it sells a low margin
soda maker machine and higher margin carbonation bottles, flavour packs, and carbon
dioxide cylinders (carbonators) that can be exchanged for refills. The flavour and
carbonation bottles are interchangeable, but the carbonators only work with
SodaStreams soda maker machines.
SodaStream was originally established in 1903 London as part of W&A Gilbey Ltd. The
business evolved over the years, introducing a mass-market carbonation machine to the
United Kingdom in the 1950s, and capturing a significant portion of the European market
share by the 1980s. In 1998 SodaStream was acquired by its Israel distributor Soda-
Club. In 2010, SodaStream entered the North American market as part of the
companys plan to aggressively expand the company globally. By mid-2013,
SodaStream had become the global leader in home carbonation.
While SodaStream had achieved strong market share success in Europe, and had
experienced early success in growing the United States (US) market following their
strategic management plan, they faced fierce opposition from the large carbonated soft
drink (CSD) companies such as Coca-Cola Company (Coke), PepsiCo (Pepsi) and the
Dr. Pepper Snapple Company (DPS). Complicating SodaStreams growth plans, they
were also facing new competitors to the HC market such as Primo Water Corporation in
partnership with Cusinart and the highly successful Green Mountain Coffee Roasters,
makers of the Keurig brand of single-serve coffee makers.
In order to understand the environment in which the US branch of SodaStream operates

in and SodaStreams competitive advantages and internal functions, this report has been
prepared. It contains a general environment analysis, an industry analysis using Porters
Five Force model, and an internal analysis comprising a competitive advantage analysis
and Porters Value Chain analysis. This report contains only these analyses and does
not contain any strategic recommendations.
2.0 GENERAL EXTERNAL ENVIRONMENT

This analysis examines external environmental factors that may result in opportunities or
threats to SodaStream. A detailed analysis in placed in Appendix.
2.1 Political/Legal Factors Opportunity

1) The US is a politically stable democratic capitalist country, ranking among
countries with the lowest political risk. Political risk may include breach of
contract and adverse regulatory changes as well as terrorism. 2 This stability
allows SodaStream to be able to relatively easily predict the impact of American
government policies on their business. Moreover, the current political deadlock
between the Democrats and Republicans will prevent any dramatic regulatory
changes in the short term3. This is potentially beneficial for SodaStream in the
short term due to the predictability of the regulatory environment; however, it

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could become problematic in the long term if legal/regulatory changes become

necessary; especially with respect to tax laws and intellectual property laws.4
2) Some multi-national corporations avoid paying federal taxes via tax shelters in 39
countries and territories. A 2013 Congressional Research Service Report shows
offshore tax shelters cost the US federal government $30 billion to $90 billion a
year. 5 Taking advantage of tax shelters is an opportunity to decrease
SodaStreams tax expenses in the short term, but it would be risky to rely on tax
shelters for the long term due to building political opposition.
3) In the US intellectual property is highly protected through the system of patents,

copyrights, and trademarks. These systems allow companies or individuals to
establish ownership of innovations or inventions and provide a legal framework
for benefiting from the innovation.6 While, the strong intellectual property laws
provide a barrier to new entrants, a serious challenger could provoke a long and
expensive legal fight in order to defend the patents, trademarks, and copyrights
held by SodaStream.
4) The Bureau of Labor Statistics revealed that the number of workers who belong
to unions was declined from 11.8% in 2011 to 11.3% in 2012.7 As the statistics
show, unions in the US have limited power which means firms have greater
ability to control wages, hours, and compensation of employees. This creates an
attractive market for SodaStream to expand business in as labour costs may be
lower and the SodaStream has greater control over them. However, there is
pressure to increase the minimum wage in the US, which may increase costs8.
This would likely provide a larger barrier to new entrants compared to established
industry players.
5) The Department of Transportation (DOT) is responsible for regulating hazardous

materials, such as the CO2 cylinder technology 9 and the Food and Drug
Administration (FDA) is responsible for regulating food products. Companies
wishing to operate in the home carbonation industry must meet the requirements
of the regulators; however cutbacks to both departments may result in fewer
inspections in the short term10. This is an opportunity for the short term due to
the reduction in red tape, but it could also allow competitors willing to cut corners
in safety to enter the market with reduced costs.
6) Litigation is a common tool for companies and customers in response to real or

perceived product liability claims. Lawsuits are increasing as are the judgements
and payouts for liability claims. A 2009 study by Fulbright and Jaworski found
that 93% of the companies surveyed believed that litigation would stay the same
or increase from the previous year and that 53% of respondents said they spent
more than $1 million per year on litigation11. These factors together represent a
threat to companies operating in the United States who do not take any steps to
mitigate or reduce the probability of litigation.
Overall, these factors result in a favourable political/legal climate in which to do

business. However, there is some increased financial risk from litigation.

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2.2 Economic Factors Threat and Opportunity

1) Interest rates in the United States have been very low with the Federal Reserve
keeping interest rates at 0.25% 12 and ten-year bonds at about 1.7% 13. These
factors make it inexpensive to borrow money and hence easier to expand a
business quickly. This is an opportunity for SodaStream to inexpensively grow
itself, however SodaStream will need to be careful to not overextend themselves
should interest rates rises.
2) The inflation rate of about 1.7 %14 is greater than or equal to the interest rate and
ten-year government bond rates of 0.25% and 1.7% respectively. This provides
an investment-friendly environment because investors will be looking for higher
returns than what is available in the bond market. This is an opportunity for an
established company like SodaStream to raise funds on the stock market or
through the bond market.
3) The United States economy has experienced a jobless recovery, where stock
prices have increased to pre-2008 levels, however the US still has a high
unemployment rate. 15 This presents an opportunity, where labour costs are
lower as more people are competing for jobs, making it cheaper to expand
operations. However, it also presents a larger threat as the middle-class market
for devices such as SodaStreams home carbonation kits have less disposable
income to spend on luxuries, which may lead to less demand for the product.
4) The recovery from the Great Recession in 2008-2009 has been slow due to
heightened uncertainty about the economy.16 This causes companies to delay
investments and for the financial market to be more conservative, reducing
funding availability and increasing borrowing costs for new start-ups. This is a
threat to companies wishing to expand within their market if they are not already
the dominant player; however it also provides an additional barrier to new
entrants.
Overall, while interest rates are low and inflation rates encourage investment in
the stock market, continued concerns over the jobless recovery has led to some
economic uncertainty over the direction of the economy that may make it more
difficult and risky to access the financial markets for funding to expand the
business. On the other hand, it also makes it harder for new companies to enter
the marketplace, potentially providing breathing room for established participants
to strengthen their position.
2.3 Socio-Cultural Factors Opportunity

1) Racial tension in the United States is an underlying issue that could have impact
on both internal operations as well as public perception of the company17. A
number of high-profile companies including Wal-Mart, Bank of America, and
Abercrombie & Fitch have all lost or settled race-based lawsuits from their
employees18. This impacts companies bottom lines, reduces productivity of their
employees, and also damages their public reputations. Any companies entering
the American marketplace should be aware of the tensions and how they can
threaten their business. On the opportunity side, there may be marketing

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opportunities for a company to appear to be progressive with respect to race and

attract considerable goodwill from their customer-base and additional free
advertising from media reporting on the progressive advertising campaigns, but
these opportunities are not without the threat of backlash19.
2) In recent years, increased health and obesity concerns have been raised over
soft drinks. 20 There has been increased pressure for the Food and Drug
Administration (FDA) to regulate the sugar and sweetener amounts in soft
drinks21and some jurisdictions have even tried to ban some sizes of soft drinks22.
These proposed regulations may provide an opportunity to SodaStream, as the
theoretical regulations will likely affect the carbonated soft drink industry to a
greater degree than the home carbonation industry and make the home
carbonation industry more attractive. Additionally, since SodaStream offers a
broad range of flavour packets and since their business does not rely on any one
particular flavour packet for profitability, it is much easier for them to adapt to
changing societal demands with respect to traditional high sugar soft-drink
products.
Overall, social trends/identities require care when designing marketing

campaigns. There is a general trend towards progressive or social liberalization,
but there are threats of backlash by large, generally older segments of the
population. There are some opportunities for a company such as SodaStream to
capitalize on concerns and potential changes to the American diet in regards to
traditional high sugar soft-drink products.
2.4 Technological Factors Opportunity

1) Social network technologies such as Facebook and Twitter (e.g. Facebook and
Twitter) allow communities to form around brands.23 This can generate stronger
brand loyalty and provides SodaStream an opportunity for greater targeted reach
with marketing messages and reduced marketing costs compared to traditional
TV, radio, and billboard advertisements 24, 25.
2) Modern computational power and database technology allows companies to

perform highly detailed data mining 26 . Access to this data provides an
opportunity for highly detailed market and customer analysis to determine trends
and to allow more targeted marketing. SodaStream can use this data to
determine which products are most popular in specific regions, which flavours
are the most popular with specific demographics and more detailed cross-tab
breakdowns of their sales and marketing data.
3) Improvements in recycling technology offers companies an opportunity to find

cheaper material sources and reduce their own wastes and the costs associated
with dealing with these wastes. Connecting the customers into a companys
recycling program also offers an opportunity to tie customers more closely to a
company and increase the costs of switching to a competitor. SodaStream has
seized on this opportunity with their CO2 cylinder recycling program, where
customers can return CO2 cylinders to SodaStream in exchange for new ones at
a reduced cost27. This saves SodaStream some money, ensures high quality of
product, and encourages customers to stay with SodaStream. The use of these

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technologies also supports SodaStreams environmentally friendly branding

exercises.
Overall, technological changes offer an opportunity for more effective and

efficient marketing, cost savings, and higher costs for customers switching to
competitors products.
2.5 Demographic Factors Opportunity

1) The 2010 US Census found that the American population is about 309 million 28
with a growth rate of about 0.7-0.9%29 , of which most growth came from the
Hispanic portion of the population 30 , 31 . The fastest growing age/population
demographic is the 45 to 64 year old segment due to the ageing baby boomers.32
The demographics offer an opportunity to SodaStream as the size of the
population provides a large market for the product, and the growth rate, higher
than most developed countries, indicates that the size of the market will continue
to grow. The observation that most of the growth comes from the Hispanic
portion of the population provides a target for marketing campaigns. The growth
of the 45 to 64 year old segment of the population provides another demographic
target that typically has a larger portion of disposable income available to them.
2) The 2008 recession resulted in increased income inequality and poverty

throughout America33,34. Studies have found that the income inequality is greater
in the south of America, while Midwest had lower levels of income inequality. 35
These demographic changes are a threat, as they may mean there is reduced
potential middle class demand for the product due to reduced budgets for
luxuries. There is also a potential opportunity here for SodaStream if they can
offer lower priced alternatives in some markets, and give them a tool to predict
the demand for the different versions of their product in different communities
based on the average wealth of the community.
Overall the demographics point at a large and growing marketplace that provides
a good opportunity for SodaStream to expand their business. However, increased
income inequality and a shrinking middle class may slow the growth of the
market.
2.6 Global Factors Threat

1) Ongoing instabilities in the Israel and Palestine political situation36 may threaten
businesses operating in those regions. The bulk of SodaStreams manufacturing
and head offices are located within Israel and the West Bank may be subject to
disruptions. Moreover, SodaStreams actions within the highly politicized
environment may impact SodaStreams global reputation 37 . There is even a
potential for sanctions against Israeli companies operating in the occupied
territories; 38 however, the United States of America is a strong supporter of
Israel and is very unlikely to participate in any sanctions.39 This means that
while there is a physical threat against SodaStreams operations in Israel and
Palestine, their American operations are likely sheltered from any economic
action taken by other countries.

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2.7 General Environment Analysis Summary Opportunity

Overall, the general environment provides a favourable setting for SodaStreams
operations. The Political/Legal, Socio-Cultural, Technological, and Demographic
segments are generally favourable and provide a number of potential opportunities for
growth, reduced costs, and more efficient operations in the supply chain management,
operations, distribution, and marketing portions of SodaStreams operations. The
Economic and Global segments present a number of potential short, medium, and long
term threats to SodaStreams operations, which should be addressed with appropriate
risk management practices.
2.8 Industry Analysis Five Forces Model

The industry analysis uses Porters Five Forces Model to examine the competitive state
of SodaStreams industry. Where a distinction allows greater insight into the challenges
faced by SodaStream within its industry, the analysis is presented for both the larger
Carbonated Soft Drink (CSD) industry and the Home Carbonation (HC) subset of the
CSD.
2.8.1 Threat of New Entrants Low Threat

The threat of new entrants into SodaStreams industry falls into two different scenarios,
the CSD and the HC industries, with different factors affecting the new entrants. A
detailed analysis of the different subfactors can be found in Table B-1 in Appendix B.
The threat analysis for the two cases is as follows:
Carbonated Soft Drink Industry: Where the CSD overlaps with SodaStreams business
model, the CSD presents high barriers to new entrants attempting to compete outside of
niche markets. Economies of scale, strong brands, high capital costs, and low switching
costs to purchase beverages from the CSD mean that the new entrants face significant
challenges to seizing a significant market share. 40 The one positive for new entrants is
that the expected retaliation by the established CSD is likely minimal as the CSD is more
likely to follow the lead of the wider beverage industry and partner with home
carbonation providers to sell their product through a different product line.41
Home Carbonation Industry: The HC industry presents a moderate to high barrier for
new entrants, depending on the degree of technical innovation in the new entrants
offerings. While SodaStream is not strongly established to be able to take advantage of
a significant economy of scale42 and the rise of online distribution channels means that
in-store distribution networks are becoming less important 43 ; SodaStreams patented
CO2 refill technology and recycling network provide substantial barriers to new entrants.
44, 45
In general, the CSD industry operates on such a large scale that new entrants need to
target a niche in order to survive when competing with the three big players: Coke,
PepsiCo, and DPS. SodaStream has some advantages that make it challenging for new
entrants into the HC industry, however SodaStreams small market share makes it
difficult for SodaStream to aggressively block new entrants from gaining a foothold.
Additionally the HC faces an uphill battle against the CSD which has a number of

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advantages that make it challenging to grow the HC market share. Therefore, the threat
of new entrants is low.
2.8.2 Bargaining Power of Suppliers Low Threat

The bargaining power of suppliers is a source of potential threat to SodaStreams profits
and as a potential source of new competitors. The threat analysis of this force from
Porters Five Force Model is as follows:
1. Suppliers for raw materials to make the sodamaker appliance, carbon dioxide
cylinders, bottles, and flavourings are substitutable. The suppliers who possess
some power are the partners with popular drink brands who provide official
flavouring packs. SodaStream has made partnerships with their brand partners
key to their growth in the USA market.46 This is a medium risk to SodaStream
(as they currently have 6 partnerships and are thus not reliant on just one
partner), but making additional partnerships could reduce the reliance on any one
supplier and reduce the power of individual suppliers.
2. Because the suppliers of SodaStream generally operate in very different
industries and the suppliers do not produce a highly differentiated product, the
threat of forward integration into the Home Carbonation industry is low.
Therefore, the overall threat from suppliers is rated as Low.
2.8.3 Bargaining Power of Buyers Moderate and Low Threat

The bargaining power of buyers in Porters Five Force Model has the potential to
encourage competitive pricing battles between the home carbonation industry
participants and reduce costs. This analysis is done for two different classes of buyers.
The first class, business to business buyers, purchase SodaStream appliances to
include in their products while the second class, business to customer buyers, purchase
SodaStreams products to use as-is.
Business to Business
1. SodaStream partners with Samsung to include SodaStream machines in

Samsung fridges.47 While the partnership with Samsung is beneficial, the lack of
competition in this area and the razor and razor blade model where most profits
are made on the consumables means the downward price pressure is minimal.
2. However, the threat of the buyer integrating back into SodaStreams market is
moderate. Samsung makes many appliances and if they see a potential market,
they may choose to make a more generic soda maker.48 Samsung is also very
good at imitating other companies and may succeed where others have failed.
The overall threat from Business to Business buyers is rated as Moderate.
Business to Customer
1. Existing customers of SodaStream are likely tied in due to the proprietary design
of SodaStreams soda makers.

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2. Increased competition and information availability on the internet may increase

the ability for individual customers to find alternate products. Low threat at
current time.
The overall threat from Business to Customers buyers is rated as Low.
2.8.4 Threat of Substitute Products High Threat

The Threat of Substitute Products force in Porters Five Force Model is how replaceable
another good or service is for the product in question. The major substitute product
threat facing SodaStream is from the carbonated soft drink industry (CSD). The CSD
individual product price is low, there are strong brand names such as Coke and Pepsi,
similar or greater quality drinks are readily available at most supermarkets or vending
machines, and CSD are sold in individual servings that are more convenient and require
less labour to prepare. Going outside the CSD to the wider beverage industry, there are
many different substitute drinks available which are inexpensive, healthy, and widely
available.
The threat from other home carbonation products is low. SodaStreams home
carbonation machines and carbonation machines are the only devices currently on the
market that receive consistently satisfactory marks as a traditional carbonated soft drink
replacement.49 The proposed systems by Green Mountain Roasters and Primo Water
Corporation do not appear to be serious challengers at this time as they are based on
existing technologies that do not produce satisfactory levels of carbonation.
The overall threat from substitute products is rated as high based on the ease and
convenience of carbonated soft drinks.
2.8.5 Intensity of Rivalry Among Competitors Moderate Threat

SodaStreams main competition for existing marketshare is expected to come from other
Home Carbonation (HC) companies rather than the broader Carbonated Soft Drink
(CSD) industry; the threats have been evaluated with respect to HC rivals. Table C-1 in
Appendix C provides a detailed analysis of the six main factors used in this analysis.
The results are summarized here.
SodaStream faces two main rivals, Green Mountain Coffee Roasters and Primo Water
Corporation, and is competing with these companies in the HC industry which has been
slow to grow as it attempts to steal market share from the broader CSD. Within the
current market, SodaStream has a slight lead in market share, but all three companies
are fairly balanced competitors within the portion of the larger CSD market they have
been able to steal from companies like Coca-Cola and PepsiCo. These factors suggest
that the intensity of rivalry among competitors is a high threat environment to
SodaStream.
On the other hand, the home carbonation industry does not face high fixed costs or
storage costs, there are high switching costs from one HC system to another,
SodaStreams carbonation system is superior to competitors products, and there are not
high exit barriers for SodaStreams competitors. Furthermore, while HC is
SodaStreams main business and the stakes are high for them, SodaStream also

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operates in other global markets and HC is a side venture for SodaStreams main
competitor. These factors combine to produce a lower threat of intense rivalry among
competitors.
2.8.6 Overall Industry Analysis Conclusion Attractive Industry

In summary, the barrier to new entrants is moderate, the threat from suppliers and
buyers is low, the threat of substitution is high and the intensity of rivalry between
competitors is moderate. Therefore, the overall industry is considered moderately
favourable for SodaStream and thus attractive to SodaStream to continue their efforts to
expand in the American marketplace.
3.0 INTERNAL ENVIRONMENT

The internal environment analysis can be subdivided into two segments: competitive
advantage and Porters Value Chain.
3.1 Competitive Advantage

A competitive advantage analysis is done by examining a companys resources (what it
has), both tangible and intangible in order to determine its capabilities (what it can do).
The initial analysis of SodaStreams resources and capabilities can be found in Appendix
D. The results of this analysis are discussed below and are also shown in Table 1 to
help identify which are competitive advantages and which might be a core competency.
Table 1: Criteria of Sustainable Competitive Advantage

Capability Valuable Rare Costly to Non- Competitive
Imitate substitutable Consequences
Distribution Yes No Yes No Medium
network (product)
CO2 cylinder Yes Yes Yes No Medium term
recycling network
Proprietary Yes Yes Yes Yes Long Term
technology and
continued
refinement of that
technology
Marketing Yes Yes No No Short term
Sustainability Yes Yes No No Medium term
branding
Expansion Yes No Yes No Medium
expertise
Partnership Yes No No Yes Long term
expertise

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3.1.1 Distribution Network

SodaStreams global distribution network covers the shipping of product to markets
around the world and the distribution approach taken within individual markets. The
phased approach to introducing new product (specialty stores, selected retailers,
broader distribution at additional retailers)50 has proven effective in other markets and is
a valuable and costly to imitate advantage. However, in the long term, it is not rare nor
is it something that another company cannot copy or create a substitute for. Therefore,
the competitive advantage offered by SodaStreams distribution network is only
expected to have a medium duration.
3.1.2 CO2 Cylinder Recycling Network

SodaStreams has created a global recycling network for their CO2 carbonator cylinders
which includes a network of American retailers willing to participate in the carbonator
exchange program. Their success at expanding this network from 25 retailers in 2008 to
12,000 by 2013 is a significant factor in SodaStreams success in growing their
American market share. The system is valuable as it allows them to maintain a high
standard of carbonation, reduce manufacturing costs for new cylinders, is rare in the
industry, and expensive to imitate (estimates put the value at about $100 million 51 ).
However, the system is reproducible by other companies, and the fact that the founder
of Primo Water Corporation was also a founder of the Blue Rhino propane gas cylinder
exchange service suggests that the dangerous good classification and additional
complications when dealing with compressed gas cylinders is not an insurmountable
problem for other companies. Therefore, the competitive advantage offered by
SodaStreams CO2 cylinder recycling network is expected to have a medium duration.
3.1.3 Proprietary Technology

SodaStreams proprietary CO2 carbonator cylinder technology is a significant competitive
advantage. The carbonation offered by the system is superior to that offered by
SodaStreams competitors and the inability of competitors to find a satisfactory
alternative has led to the failure of earlier attempts at competition by Primo Water
Corporation, Hamilton Beach, and Cusinart 52 . Competitors have attempted to use
alternate CO2 cylinder technologies as well as disposable CO2 pellets. While Green
Mountain Roasters have claimed to cracked the carbonated soft drink code, patent
filings have suggested their system relies on the CO2 pellets which have yet to be
shown to produce satisfactory levels of carbonation. 53 Thus, SodaStreams proprietary
CO2 carbonator cylinder technology is valuable, rare, expensive to imitate, and non-
substitutable by competitors to date. This combination of factors suggests that it can be
expected to provide a long term competitive advantage.
3.1.4 Marketing
SodaStream has had significant success with their marketing campaigns to date and
have managed to generate significant buzz through the use of guerilla marketing to gain
market awareness of their product. By focusing on an environmental message and
combining it with advertising messaging that was not afraid of calling out Coca-Cola and
PepsiCo directly, their marketing campaign has managed to produce some controversy

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and discussion that provides additional reach and makes SodaStream seem like the
trendier/hipper newcomer while making the established CSD titans appear to be
wasteful bullies.54 The sustainability branding is a positioning of the company designed
to appeal to some environmentally conscious consumers in the short term, but is also
betting that the market demand for environmentally responsible consumer products will
expand in the future. The combination of the marketing and branding is expected to
provide SodaStream with a medium term competitive advantage. While it is valuable
and rare within the industry, since the marketing is based on external marketing
agencies and the environmentally conscious marketing is easily reproducible and could
easily be copied by other companies or hired away from SodaStream.
3.1.5 Expansion Expertise

SodaStream has had significant management experience in expanding to new
marketplaces. Within the European marketplace, they have been able to achieve
industry penetration of up to 25% in some markets. 55 By mid-2013, SodaStreams
products were sold in more than 60,000 stores worldwide in 45 different countries. 56
The multi-channel distribution strategy and expertise has proven valuable and costly to
imitate in the past, but it isnt rare amongst global appliance distributors can be copied
by others. Therefore it is expected to provide a medium term competitive advantage.
3.1.6 Partnership Expertise

SodaStream has managed to establish partnerships with major brand name companies
for flavour packs such as Ocean Spray, Kool Aid, Crystal Light, and Campbells. The
experience in reaching deals with such companies provides SodaStream with a valuable
and non-substitutable competitive advantage for the long term (duration of partnership
deals), but this is an expertise that is not rare in the business environment, nor is it costly
to imitate as most competitors will be attempting to create their own exclusive
partnerships with popular flavour brands.
3.1.7 Core Competencies

Table 1 indicates that SodaStreams proprietary CO2 carbonator cylinder design and in-
house exclusive development of the technology is a core competency not available to
competitors who either need to develop an equivalent alternate technology or use an
inferior alternate technology. Most of SodaStreams other competitive advantages are
short to medium term in effect and can be copied or reproduced by competitors.
3.2 Porters Value Chain

Porters value chain analysis is performed to help a company determine which parts of
its operation create value and which portions do not, or cost the company money. Value
chain activities include supply-chain management, operations, distribution, marketing,
and follow-up service. Support functions include finance, human resources, and
management information systems. Table E-1 in Appendix E contains a detailed analysis
of the major value chain activities and initial ratings of each activity as a strength or
weakness. Detailed discussions of these analyses are found in sections 3.2.1 through
3.2.8.

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3.2.1 Value Chain Activities Supply Chain Management

SodaStreams supply chain covers their acquisition of the raw materials used to make
their appliances, the CO2 manufacturing and recycling system and the acquisition and
production of the flavour kits. The major raw materials required for these systems are
aluminum, brass, and plastic for the machines, CO2 for the carbonator cylinders, and
sugar for the flavour syrups.
Costs for the raw materials have fluctuated in recent years 57 , and in response
SodaStream has attempted to use a mixture of long-term contracts for metal ores and
the raw materials combined with short-term spot contracts to fill in any gaps to help
control costs and to protect SodaStream from large price spikes58.
The CO2 recycling system provides SodaStream an opportunity to capture cost

efficiencies and savings within the system. SodaStream has taken advantage of this
opportunity and been able to introduce a high level of automation to the system59 while
maintaining a high level of quality in their product and the degree of carbonation
provided by their home carbonation machines. SodaStreams recycling program has
also solved the issue of transporting compressed gases, classified as a dangerous good
in many jurisdictions.
Overall, SodaStreams supply chain management is a strong part of their success as a

business and they have managed to moderate weaknesses or turn a potential weakness
into a customer retention tool in the case of the CO2 carbonator cylinder recycling
program.
3.2.2 Value Chain Activities Operations60, 61

Eight of the fourteen facilities comprising SodaStreams operations are located in Israel.
The remainder are located in China (3), Europe (2), and the United States (1). While
their operations are highly efficient, their concentration of operations in Israel and within
the West Bank leaves SodaStream vulnerable to any conflicts arising from the political
situation within the region.
3.2.3 Value Chain Activities Distribution

SodaStreams distribution system relies on a phased distribution model where their
product is initially sold through speciality home good stores, followed by making it their
product available at early adopter stores like Macys, then followed by making it available
in mass market stores such as Costco, Walmart, and London Drugs62. This approach
has allowed SodaStream to effectively expand into a new market as their market share
grows without a high financial risk. It also allows them time to setup and grow their
carbonator exchange program so it can support a local market.
Separate from their store-based distribution model, SodaStream also makes their
product available via their own direct online store as well as other online stores such as
Amazon.

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3.2.4 Value Chain Activities Marketing63

SodaStreams marketing department has proven very effective in establishing
SodaStream within the America market on a very limited budget compared the industry
leaders in the CSD. SodaStream has managed to do this by following a guerilla
marketing campaign that has managed to generate significant media buzz and draw a
public response from Coca-Cola that made Coke look like a bully and SodaStream as
the more environmentally friendly and hipper company. SodaStreams marketing
department has proven to be fast reacting and able to take advantage of slip-ups and
opportunities within the media and CSD to spread awareness of SodaStreams
messaging.
Outside of SodaStreams guerilla marketing campaign, SodaStream has chosen to avoid

using television advertising and instead rely radio advertising via popular radio
personalities, YouTube commercials, social media, and email advertising to increase
awareness of their products. Partnerships with popular brands such as Ocean Spray,
Kraft, and Campbells has allowed SodaStream to piggy-back on the popularity of these
beverage brands to convince consumers to choose SodaStream over its competitors in
HC.
3.2.5 Value Chain Activities Follow-up Service64

SodaStreams follow-up service comprises their warranty system, support via their
website, the carbonator recycling system, and their referral program. Customers are
generally satisfied with their product, but there are complaints with respect to the
customer service related to their online storefront and warranty responses.65
The carbonator recycling program, in addition to acting as a quality control and

distribution method for the carbonators, also acts as a customer retention tool. The ease
with which customers can return their empty carbonators in exchange for a new
carbonator at a reduced price, and the fact that only SodaStream carbonators are
compatible with SodaStream machines keeps the customers coming back to
SodaStream66.
SodaStreams friend referral program and the word-of-mouth it generates have been
credited with the rapid expansion of the companys initial growth during the first phase of
distribution via high-end retailers 67 . The referral program allows customers to gain
points they can use to purchase SodaStream products by referring their friends and
allows SodaStream to collect online data on their customers and their customers
contact information, location, and preferences.
3.2.6 Support Functions Finance68

SodaStreams financial position is fairly good and they are well positioned for their
targeted growth goals. SodaStream does not have any long-term debts or liabilities.
Their year-over-year revenue and profits have grown since they entered the American
market and they have been profitable in the American market since 2011. SodaStream
has been able to take advantage of tax incentives in Israel to keep operation costs and
land costs low. While their stock price has been volatile, SodaStream is not highly

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reliant on stock financing to fund their growth. Overall, SodaStream is well positioned to
continue to grow and face new challengers in the home carbonation industry.69
3.2.7 Support Functions Human Resources

The bulk of SodaStreams workforce is located in Israel and work in the operations
branch of the company. SodaStream has been able to take advantage of lower wages
within the West Bank to keep operating costs low; however they have faced growing
opposition to their operations in the region and have received criticism over their
treatment of workers within the West Bank.70
3.2.8 Support Functions Management Information Systems71

SodaStreams online customer login required for the referral program, sweepstakes,
contests, product registration, newsletter signups and other notifications allows
SodaStream to collect customer names, addresses, email addresses, phone numbers,
demographic information, gender information and responses to survey questions.
SodaStream uses this data in accordance with their privacy policy to identify customer
desires, effective advertising methods and the popularity of different products offered by
SodaStream.
4.0 SUMMARY
Overall, the general environment SodaStream operates in provides a favourable setting
for SodaStreams operations. The Political/Legal, Socio-Cultural, Technological, and
Demographic segments are generally favourable and provide a number of potential
opportunities for growth, reduced costs, and more efficient operations in the supply chain
management, operations, distribution, and marketing portions of SodaStreams
operations. The Economic and Global segments present a number of potential short,
medium, and long term threats to SodaStreams operations, which should be addressed
with appropriate risk management practices.
Within the Carbonated Soft Drink industry and its subset, the Home Carbonation industry
SodaStream faces a moderate level of threat from new entrants and a challenge to
convince customers to switch from purchasing traditional individual servings of
carbonated soft drinks to purchasing home carbonation systems. However, the threat
from suppliers and buyers are low and taken together, the industry is considered
moderately favourable for SodaStream and thus attractive to SodaStream to continue
their efforts to expand in the American marketplace.
Internally, SodaStreams main competitive advantage is their proprietary CO2 carbonator

cylinder design and in-house exclusive development of the technology which can be
considered a core competency not available to competitors who either need to develop
an equivalent alternate technology or use an inferior alternate technology. In the
medium term, SodaStreams in-house marketing department has proven to be an
efficient and effective capability that has allowed SodaStream to rapidly increase the
public awareness of their product. Looking to the long-term, most of SodaStreams other
competitive advantages are short to medium term in effect and can be copied or
reproduced by competitors, but it remains to be seen if the competitors can overcome
the technical challenges needed to compete with SodaStream.

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The internal value chain analysis of SodaStream suggests that the supply chain
management, traditional distribution, and marketing activities are strengths that provide
SodaStream with their edge over their competitors. Weaknesses and areas for
improvement have been identified in their operations stability, their follow-up service and
internet order filling, and in their human resources functions. SodaStream could also
potentially do more with their information systems and data-mining to increase customer
satisfaction, retention, and promotion of their product.
1. Ram Subramanian, SodaStream takes on Coke and Pepsi (London, ON: Ivey
Publishing, 2014), 1-8.
2. Access Costs Everywhere, Political & Security Risks,
http://acetool.commerce.gov/political-security-risks.
3. The Economist, "Intransigence is good strategy,
http://www.economist.com/blogs/democracyinamerica/2014/03/political-gridlock.
4. John D. Mcknnon, Former official: Treasury doesnt need congress on inversions,
The Wall Street Journal,http://blogs.wsj.com/washwire/2014/07/28/former-official-treasury-doesnt-
need-congress-on-inversions/.
5. Mark Niquette, U.S. States Target Corporate Cash Stashed Overseas, Bloomberg
Businessweek, April 17, 2014.
6. Economic & Statistics Administration, Intellectual property and the US economy:
Industries focus, http://www.esa.doc.gov/Reports/intellectual-property-and-us-economy-
industries-focus.
7. Bureau of Labor Statistics, Union Membership News Release, released January 23,
2013, http://www.bls.gov/news.release/archives/union2_01232013.htm.
8. The Whitehouse, Raise the wage, http://www.whitehouse.gov/raise-the-wage.
9. SodaStream, SodaStream offers a convenient way to exchange your empty
carbonators, http://www.sodastreamusa.com/CarbonatorInfo.aspx.
10. Elizabeth Weise, Budget cuts wont reduce food safty inspections, USA TODAY,
http://www.usatoday.com/story/news/nation/2013/05/03/budget-cuts-food-safety-fda-usda-
sequester/2129597/.
11. Dana Alden Fox, Christopher G. Kopser, Steven E. Lessick, Bruce D. Margolin, and
Richard C. Woollams, Frequency of Severity: The New Reality for Excess Casualty, CHARTIS,
http://www.aig.com/ncglobalweb/internet/US/en/files/Frequency%20Severity_Excess%20Casualt
y%20Rev_tcm295-262033.pdf.
12. Trading Economics, United States Fed Funds Rate,
http://www.tradingeconomics.com/united-states/interest-rate.
13. Trading Economics, United States Government Bond 10Y,
http://www.tradingeconomics.com/united-states/government-bond-yield.
14. The World Bank, Inflation, GDP deflator (annual %), Data Catalog, accessed
September 30, 2014, http://data.worldbank.org/indicator/NY.GDP.DEFL.KD.ZG.
15. The Economist, Americas Jobless Recovery, The Big Picture. The Economist,
August 3, 2012, http://www.economist.com/blogs/freeexchange/2012/08/americas-jobless-
recovery.
16. Nicolas Broom, M. Ayhan Kose, and Marco E. Terrones, Held Back by Uncertainty,
http://www.imf.org/external/pubs/ft/fandd/2013/03/bloom.htm.
17.John Fitzgerald Gates, Ph.D., What Corporate America Should Learn From
Ferguson, Missouri, Huff Post Business, http://www.huffingtonpost.com/john-fitzgerald-gates-
phd/what-corporate-america-sh_b_5704523.html.
18. Ibid.
19. Cord Jefferson, Cheerios Ad Starring Interracial Family Predictably Summons Bigot
Wave, GAWGER, http://gawker.com/cheerios-ad-starring-interracial-family-predictably-sum-
510591871.

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Vancouver, BC
September 30, 2014
20. Caroline M. Apovian, Sugar-Sweetened Soft Drinks, Obesity, and Type 2 Diabetes,
The Journal of the American Medical Association 292, no. 8 (2004): The JAMA Network.
21. The Boston Globe, Health & Wellness, http://www.bostonglobe.com/lifestyle/health-
wellness/2013/02/13/boston-public-health-leaders-urge-fda-regulate-sugar-soft-
drinks/dxPG9XCOGoMK51lTdWNCVI/story.html.
22. Joseph Ax, Bloombergs ban on big sodas is unconstitutional: appeals court,
REUTERS, http://www.reuters.com/article/2013/07/30/us-sodaban-lawsuit-
idUSBRE96T0UT20130730.
23. Bruno Schivinski and Dariusz Dabrowski, The impact of brand communication on
brand equity dimensions and brand purchase intention through facebook, Gdansk University of
Technology, http://www.zie.pg.gda.pl/c/document_library/get_file?uuid=a09080de-92f4-42d5-
a1d1-a54d93de3221&groupId=10236.
24. Waad Assaad and Jorge Marx Gmez, Social Network in marketing (Social Media
Marketing) Opportunities and Risks, Vol. 2, No. 1, September 2011, International Journal of
Managing Public Sector Information and Communication Technologie,
http://airccse.org/journal/mpict/papers/0911ijmpict02.pdf.
25. John Swartz, More marketers use social networking to reach customers, abc News,
http://abcnews.go.com/Business/marketers-social-networking-reach-
customers/story?id=8431747.
26 . Bill Palace, Data Mining: What is Data Mining?, Anderson Graduate School of
Management at UCLA,
http://www.anderson.ucla.edu/faculty/jason.frand/teacher/technologies/palace/datamining.htm.
27. Eddie Cordoba, SodaStream: Great Barrier CO2,
http://www.capitalladders.com/newsletter/sodastream-great-barrier-co2.
28. U.S. Census Bureau, Population Distribution and Change: 2000 to 2010, 2010
Census, released March 2011, http://www.census.gov/prod/cen2010/briefs/c2010br-01.pdf.
29. National Center for Health Statistics. 2011, National Vital Statistics Reports, "Births:
Preliminary Data for 2010," Volume 60, Number 2
http://www.cdc.gov/nchs/data/nvsr/nvsr60/nvsr60_02.pdf.
30. U.S. Census Bureau, 2010 Census.
31. National Center for Health Statistics. 2012, National Vital Statistics Reports, " Births:
Final Data for 2012," Volume 61, Number 1,
http://www.cdc.gov/nchs/data/nvsr/nvsr61/nvsr61_01.pdf.
32. U.S. Census Bureau, Age and Sex Composition: 2010, 2010 Census, released
March 2011, http://www.census.gov/prod/cen2010/briefs/c2010br-03.pdf.
33. U.S. Census Bureau, Current Population Report: Income and Poverty in the United
States: 2013, released September 2014,
http://www.census.gov/content/dam/Census/library/publications/2014/demo/p60-249.pdf
34. Ibid.
35. U.S. Census Bureau, Household Income Inequality Within U.S. Counties: 2006
2010, released February 2012, http://www.census.gov/prod/2012pubs/acsbr10-18.pdf.
36. SodaStream,2012 Annual Report, 18, Megent Online.
37. Ibid.
38. Ibid.
39. Clyde R. Mark, Israeli-United States Relations, modified October 17, 2002,
http://www.policyalmanac.org/world/archive/crs_israeli-us_relations.shtml.
40. Ram Subramanian, SodaStream takes on Coke and Pepsi, 7
41 Ibid
42. Ibid.
43. Ibid.
45. Ram Subramanian, SodaStream takes on Coke and Pepsi, 9
46. Ram Subramanian, SodaStream takes on Coke and Pepsi, 7.

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47. Ibid., 8.
48. Sam Grobert, Samsung Wants to Be the World's Biggest Appliance Maker by 2015,
BroombergBusinessweek, http://www.businessweek.com/articles/2014-01-09/samsung-wants-to-
be-the-worlds-biggest-appliance-maker-by-2015.
52. Ibid.
53. Ibid.
54. Ram Subramanian, SodaStream takes on Coke and Pepsi, 4-5.
55. Ibid., 7.
56. Ibid.
57. Ibid.
58. SodaStream,2012 Annual Report, 17, Megent Online.
63. Ibid., 4-5.
64. SodaStream, Frequently Asked Questions,
http://www.sodastreamusa.com/faq.aspx#a6.
65. SodaStream USA, yelp, http://www.yelp.ca/biz/sodastream-usa-cherry-hill.
67. Rupal Parekh, SodaStream Pops Up in a Big Way,

http://adage.com/article/special-report-americas-hottest-brands/america-s-hottest-brands-
sodastream/231205/.
70. Stephanie Westbrook, SodaStream "treats us like slaves," says Palestinian factory
worker, http://electronicintifada.net/content/sodastream-treats-us-slaves-says-palestinian-factory-
worker/12441.
71. SodaStream, Privacy policy, http://www.sodastreamusa.com/privacy.aspx.

Document1 17

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Mr.

SodaStream International Limited

Mr. Kevin James

Hideyo Matsufuji 100079844

September 30, 2014

Course Number: BUSM 4200 Section 001

Overall, the general environment provides a favourable setting for SodaStreams

The weaknesses identified by the value chain analysis are:

1. Follow-up services and warranties

Course Number: BUSM 4200 Section 001

EXECUTIVE SUMMARY ........................................................................................................... ii

1.0 INTRODUCTION ............................................................................................................... 1

2.0 GENERAL EXTERNAL ENVIRONMENT .......................................................................... 1

3.0 INTERNAL ENVIRONMENT ............................................................................................. 9

4.0 SUMMARY ...................................................................................................................... 14

Course Number: BUSM 4200 Section 001

APPENDIX A GENERAL ENVIRONMENT ANALYSIS BRAINSTORMING

Course Number: BUSM 4200 Section 001

In order to understand the environment in which the US branch of SodaStream operates

2.0 GENERAL EXTERNAL ENVIRONMENT

2.1 Political/Legal Factors Opportunity

Course Number: BUSM 4200 Section 001

could become problematic in the long term if legal/regulatory changes become

3) In the US intellectual property is highly protected through the system of patents,

5) The Department of Transportation (DOT) is responsible for regulating hazardous

6) Litigation is a common tool for companies and customers in response to real or

Overall, these factors result in a favourable political/legal climate in which to do

Course Number: BUSM 4200 Section 001

2.2 Economic Factors Threat and Opportunity

2.3 Socio-Cultural Factors Opportunity

Course Number: BUSM 4200 Section 001

opportunities for a company to appear to be progressive with respect to race and

Overall, social trends/identities require care when designing marketing

2.4 Technological Factors Opportunity

2) Modern computational power and database technology allows companies to

3) Improvements in recycling technology offers companies an opportunity to find

Course Number: BUSM 4200 Section 001

technologies also supports SodaStreams environmentally friendly branding

Overall, technological changes offer an opportunity for more effective and

2.5 Demographic Factors Opportunity

2) The 2008 recession resulted in increased income inequality and poverty

2.6 Global Factors Threat

Course Number: BUSM 4200 Section 001

2.7 General Environment Analysis Summary Opportunity

2.8 Industry Analysis Five Forces Model

2.8.1 Threat of New Entrants Low Threat

Course Number: BUSM 4200 Section 001

2.8.2 Bargaining Power of Suppliers Low Threat

Therefore, the overall threat from suppliers is rated as Low.

2.8.3 Bargaining Power of Buyers Moderate and Low Threat

1. SodaStream partners with Samsung to include SodaStream machines in

The overall threat from Business to Business buyers is rated as Moderate.

Course Number: BUSM 4200 Section 001

2. Increased competition and information availability on the internet may increase

The overall threat from Business to Customers buyers is rated as Low.

2.8.4 Threat of Substitute Products High Threat

2.8.5 Intensity of Rivalry Among Competitors Moderate Threat

Course Number: BUSM 4200 Section 001

2.8.6 Overall Industry Analysis Conclusion Attractive Industry

3.0 INTERNAL ENVIRONMENT

3.1 Competitive Advantage

Table 1: Criteria of Sustainable Competitive Advantage

Course Number: BUSM 4200 Section 001