SodaStream’s CEO Really Hates Bottled Water’s Rising Popularity

April 19, 2017, 7:42 PM UTC

Americans are increasingly ditching soda for water. Do-it-yourself beverage carbonation maker SodaStream CEO Daniel Birnbaum has mixed feelings about the trend.

“We all know that water is healthier [than soda],” Birnbaum told Fortune in a recent interview. Asked how we should use this information, he responded, “You can encourage the consumption of public waters. You can encourage reusable bottled [water].”

But what Birnbaum doesn’t advocate is the increased marketing of bottled waters sold by Coca-Cola (KO), PepsiCo (PEP) and Nestle (NESTLE-S-A). Across beverage categories, volume growth was strongest for bottled waters like Poland Spring, Aquafina and Dasani as demand for carbonated soft drinks declined, according to annual stats released by industry tracker Beverage Digest on Wednesday.

In response to falling soda sales, big soda makers have added healthier beverages to their portfolios. This includes new branded categories such as “premium waters”—a sliver of the market that comes with higher price points and trendier bottle labels. Coca-Cola leads the market with Smartwater, while PepsiCo launched its own premium water line last year.

SodaStream’s Birnbaum is vehemently against these “premium” brands, which he calls “the biggest marketing and advertising scam of all time.” Throughout his interview with Fortune, Birnbaum repeatedly called Smartwater “dumb water” and questioned why PepsiCo had entered the category. “What’s the point of another brand? The whole industry is wrong,” Birnbaum says. He claims that not only do Americans trash millions of bottles of water each day, but Coca-Cola and Pepsi, by selling brands like Smartwater, are to blame.

To be sure, when Birnbaum makes these claims, he has his own business interests in mind. SodaStream, which sells 3 million machines globally each year, would obviously like to sell more. Market penetration is strong in Europe, where 16.5% of German households and 20% of Swedish homes have a SodaStream device on their kitchen counters, mostly because those markets enjoy sparkling water and are more environmentally conscious. In the U.S. where those trends are less prevalent, market penetration is a slim 1%.

Sales for SodaStream’s devices sputtered a few years ago after a decision to aggressively stock the brand’s products on Wal-Mart Stores’ (WMT) shelves led to overstocking and eventually, discounting. “That was a mistake,” Birnbaum concedes. “They bought $50 million from us but it didn’t move and it got marked down, killing us everywhere else.”

SodaStream eventually pivoted. It focused more on retailers that would hold firmer on price, maintaining relationships with Bed Bath and Beyond (BBBY), Target (TGT) and Amazon (AMZN). After sales dropped in 2014 and 2015, revenue recovered last year, rising to $476 million from 2015’s $413 million. The stock also began to rebound.

Birnbaum attributes SodaStream’s recovery to a keen focus on the brand. He says it stands for the “environment, sustainability, health and wellness, and convenience.”

This wellness push is a relatively new angle for the at-home beverage device maker. In fact, SodaStream’s shift in marketing resembles changes at PepsiCo and Coca-Cola. When Birnbaum first joined the company a decade ago, he positioned it to be a way for consumers to make cola at home using whatever level of sweetness they deemed appropriate. (SodaStream even partnered briefly with PepsiCo.)

But a few years ago, SodaStream began to see the writing on the wall: Americans were falling out of love with soda. Roughly three years ago, SodaStream took steps to re-positioned the brand to focus on water. Today, 90% of volume made on the machines is turning plain water into sparkling.

“We sparkle water and if there’s a culture that enjoys that, we are a natural fit,” Birnbaum said. “In America, we don’t drink a lot of sparkling water but we are seeing declines for colas. Consumers are walking away from the sweet stuff in favor of water and other hydration options.”

To more aggressively compete as a sparkling water brand, SodaStream last month announced the launch of the Aqua Fizz Sparkling Water Maker—a unit that will aim to attract water seeks while SodaStream still can target soda users. The new brand will hit retail shelves in the U.S. starting in June.

Read More

Great ResignationInflationSupply ChainsLeadership