The sparkling water market is ascendant. I think I've seen every single one of my graduate students drinking a can of La Croix at some point. I have a colleague who says her SodaStream is her favorite appliance. Last year, Americans drank more bottled water than soda, and sparkling water has seen a particular increase. And as water sales have gone up, soda sales are suffering.

Last week, Pepsi announced that it would purchase SodaStream for $3.2 billion. That's billion with a B. You might think such a large transaction indicates two companies with a cozy relationship. These two companies, however, have not always gotten along. SodaStream's marketing has taken the soda and bottled water industry head on. The make-at-home sparkling water company has been especially critical of soda companies' unhealthy sugary drinks, and both industries' reliance on plastic bottles. SodaStream CEO Daniel Birnbaum called the soda and bottled water industries "evil," and said that "it shouldn't be legal."

In fact, SodaStream has had Pepsi in its sights before: in one advertisement, SodaStream took brutal aim at bottled water, which happened to have a logo and name awfully similar to Pepsi's Bubly. My Inc. colleague Justin Bariso called it a declaration of war. Oddly, this campaign came shortly after the launch of a partnership where Pepsi would produce flavor pods for use with SodaStream.

With such mutual distain, why the merger? Here's why Pepsi's big purchase makes sense:

1. Access to the Home

SodaStream allows consumers to make a product they would otherwise have to purchase. The company has broken a barrier that many companies long for: they've crossed the threshold into the home. Offering SodaStream is a chance to grow their direct-to-consumer and ecommerce sales. It also provides Pepsi easier access to test new products with actual consumers.

2. Preparing for the Future

Pepsi hasn't missed the slowdown in soda sales. In recent years, Pepsi has looked to broaden its appeal and shift its branding. It no longer wants to be seen as a soda company. Instead, they want a piece of the growing market for healthier and more natural options. The purchase of SodaStream complements other acquisitions and product developments Pepsi has made: they purchased Quaker, Sabra hummus, and Naked Juice, launched Bubly, and added flavored sparkling water to their Aquafina line. Additionally, Pepsi is buying SodaStream's marketing as an environmentally conscious company, which is important to Millennials.

3. That's Business, Baby.

Sometimes business requires thick skin and short memory. A company that's a rival one day can be a partner the next. So even though they've both loved and hated each other in the past, Pepsi saw potential with SodaStream and pounced. Any lingering hurt feelings pale in the face of $3.2 billion and a ton of opportunity.

Published on: Aug 31, 2018
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