SodaStream is addressing its biggest problem

Facing new competition from the expected launch of Keurig Green Mountain Inc’s at-home soda machine in 2015, top player SodaStream International is seeking to appeal to increasingly health-oriented consumers.

As U.S. demand for sweet soft drinks declines, SodaStream in October cut its 2014 revenue and profit forecast and said it would close a controversial factory in the Israeli-occupied West Bank, that had sparked calls for a boycott of its products.

At the same time, competition is heating up. Keurig’s upcoming cold beverage system is being developed with help from Coca-Cola <ko.n>, which became Keurig’s largest shareholder last year when it bought a 16 per cent stake.

“We are not about to relinquish our number one position in the U.S. or anywhere. We are looking forward to healthy competition,” Chief Executive Daniel Birnbaum said on the sidelines of a news conference to launch its new product line.

SodaStream, whose revenue grew 30 per cent a year on average since 2008, reaching $US562.7 million in 2013, forecast a 9 per cent drop in 2014. Its stock on Nasdaq has fallen almost 60 per cent since last April when it hit a high for 2014 of $US47.30, and is now trading at $US19.90.

“I think we failed in 2014 because we didn’t identify quickly enough the change in the market,” Birnbaum said.

“U.S. consumers don’t want better Coke, they want more interesting water.”

Demand for sparkling water is on the rise, with the U.S. market up 33 per cent to nearly $US1.5 billion in 2013. This trend continued in 2014, Birnbaum said.

In response, SodaStream is launching a line of flavored waters, some with no calories and others with added fibres and vitamins. It will also sell its first electric soda machine.

Birnbaum said the company’s $US65 million annual marketing budget will be dedicated to this new line.

SodaStream is also expanding its partnership with PepsiCo <pep.n> and will begin selling capsules in New Jersey to make Pepsi and Sierra Mist sodas at home. The capsules are already sold in Florida.

The company is also in the process of closing down its contested West Bank facility.

It has received permits to bring in 100 Palestinians workers from that plant to a new factory in Israel. Birnbaum said SodaStream was seeking to obtain more permits for Palestinian workers as is needed.

(Editing by Crispian Balmer)

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