Bubbles worth billions

In the Marx Brothers' classic 1936 film “A Day at the Races,” there is mayhem. Harpo battles an out-of-control spritz bottle (soda water syphon) and sprays soda water all over a hotel room. Groucho says, “This is no place for a man who hasn't been in the Navy.” I imagine most readers have never seen an old-fashioned spritz bottle. If they want to see a real one, they can visit the Museum Rishon LeZion. There, in a glass case, is an exhibit: “Soda Syphon. Glass container with a metal tap and handle on top. When pressed, the handle sprayed a jet of carbonated water. When empty, the container had to be refilled at the factory. Used until the invention of the Sypholux drinking soda bottle, which was made of metal and could be refilled at home [using refillable CO2 cartridges].” Fast forward to 2006. Yuval Cohen, managing partner in an Israeli private equity company, contacts Daniel Birnbaum, then a senior Nike marketing executive. Cohen specializes in buying failing companies and reviving them. He had just bought a moribund company called Soda Club, which sold a museum relic – spritz bottles for making carbonated water. He pays only $6 million. Birnbaum proves to be an inspired choice. Nike, Birnbaum's employer at the time, is one of the world's most creative marketers to this day, and its innovative marketing campaigns are widely taught by business schools. Cohen offers Birnbaum a near-impossible job – revive Soda Club and its archaic product, with a minuscule budget. Birnbaum picks up the gauntlet. And Birnbaum does the near impossible. Soda Club, worth $6 m. at its inception, becomes SodaStream, worth $3.2 billion, or more than 500 times more. How he did it is explained below. Fast forward one more time. It is Monday, August 20. The Washington Post reports that “PepsiCo, the cola giant, announced… that it is buying SodaStream International, the Israeli company behind the do-it-yourself soda maker, for $3.2 billion, or $144 per share.” PepsiCo, founded in 1898, is a giant US-based global company, with annual revenues of $63.5 billion (2017), net income of $4.9 billion, and the market value of its shares exceeds $160 billion. PepsiCo's incoming Chief Executive Officer Ramon Laguerta promises to “keep SodaStream in Israel for 15 years… but I think it's going to be forever.” “Americans have been drinking seltzer for over a century, but we've hit a tipping point,” Barry Joseph, author of the book “Seltzertopia” told The Washington Post. “Seltzer isn't just a beverage anymore; it's become a lifestyle choice.” “Americans have been drinking seltzer – and making it at home using carbon-dioxide cartridges – since the early 1900s,” Joseph told The Washington Post. “Soda shops helped popularize drinks such as egg creams (which are made with carbonated water, milk and flavored syrup) that families then recreated at home. But demand stalled during World War I and continued to decline precipitously until the 1970s, when Perrier expanded into the United States. “Since then, the drink has enjoyed a steady rise. SodaStream entered the US market in the early 2000s, making it cheaper – and easier – for Americans to turn tap water into carbonated beverages. The company says it now has 12.5 million active customers, up from 4.5 million in 2012. Sales are up 31 percent so far this year,” noted The Washington Post. Birnbaum reaps a well-deserved reward. The 160,000 stock options he was awarded in May by his Board of Directors vest (i.e. become sellable) immediately and are worth an estimated $23 m. He did not forget his workers, as often happens in similar acquisitions. Each SodaStream employee with a year or more of seniority receives 18,000 shekels. “We are moving full steam ahead on our journey to make the world better,” Birnbaum announces. “It's going to be fun! This is just the beginning.” Six years ago, I helped facilitate an event at the Technion in which Birnbaum spoke about innovation with senior managers from traditional low-tech industries, mainly from kibbutzim. (See “Not just blowing bubbles,” The Jerusalem Report, May 21, 2012.) “I had to completely change the company's cultural DNA,” Birnbaum told the gathering. He began with a dream – to revolutionize the huge world market for fizzy soft drinks like Coke and Pepsi. “You need more than the profit motive to motivate,” he explained. For SodaStream, the motive was doing good for Israeli society and workers, including minorities, and helping the environment. The former Jewish mayor of Curitiba, Jaime Lerner, once said that to achieve true creativity, slash two zeros from your budget. Birnbaum found ways to create a “buzz” about SodaStream without huge marketing budgets. He recounted how, at the 2010 International House and Housewares Show in Chicago, he created “The Cage,” a recycling bin filled with 10,657 cans and bottles – the number discarded by the average US family over a five-year period. Birnbaum stood next to it holding a single SodaStream bottle, sufficient to replace all that plastic, and next to him stood Hollywood star and Oscar winner Susan Sarandon, an environmental crusader. The photograph of “The Cage” quickly went viral, generating enormous free publicity. Birnbaum had the SodaStream device redesigned, using bright colors. The company's revenues today come mainly from sale of flavorings and CO2 cartridges. In The Report, in 2012, I wrote that the main SodaStream plant, near Mishor Adumim in the West Bank, had sparked protests from pro-Palestinian groups, even though SodaStream was the largest employer of Palestinians in the area “and provided full medical and social benefits and Israeli-scale wages.” Over time, the protests grew, mainly owing to the BDS (Boycott, Divestment, Sanctions) movement. Eventually, SodaStream was forced to close the plant and move its operations to the Negev, harming many Palestinians. Today, SodaStream employs 3,500 workers, of whom 2,000 are in the Negev. Its stellar second-quarter performance likely helped woo PepsiCo. Sales were up 31% over last year, earnings rose 82%, and growth targets soared. “PepsiCo got a great deal,” analyst Jeffery Bowman noted. Birnbaum and SodaStream have taught Israel an important lesson. Global success need not come solely from hi-tech startups. If you take a venerable, traditional product that has a long gray beard, redesign it, market it, and make it “cool” again, jobs, income and wealth will result. This was Birnbaum's message to senior managers from Israel's large traditional industries in 2012. I regret that the creativity, innovation and dynamism of hi-tech has not yet spread sufficiently to medium- and low-tech sectors. Birnbaum told Roee Bergman and Gad Leor, reporters for the daily Yedioth Ahronoth, that he dedicated the PepsiCo acquisition to his father, a Holocaust survivor. “On July 18, 1947,” he recounted, “71 years ago, a British destroyer fired on the Exodus, a ship bringing Holocaust survivors to Israel. The ship returned to Europe. Twenty-two years later, one of the youths who had been on that ship, my father, made aliyah and settled in Sde Boker, in the Negev.” “Who would believe, Father, that after the Shoah and all you went through, after you lost 30 of your family members – who would believe that you would reach this moment, the vision of Ben-Gurion, a prosperous nation and a prosperous economy!” The writer heads the Zvi Griliches Research Data Center at S. Neaman Institute, Technion and blogs at www.timnovate.wordpress.com

Bubbles worth billions

Soda Club, worth $6 m. at its inception, becomes SodaStream, worth $3.2 billion, or more than 500 times more.

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Bubbles worth billions

Soda Club, worth $6 m. at its inception, becomes SodaStream, worth $3.2 billion, or more than 500 times more.

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