Is soda over? Pepsi buys SodaStream for $4.8b

Sparkling water is growing in popularity as consumers shun sugary drinks. Photo/Getty Images.

PepsiCo is betting big on Americans' love affair with seltzer.

Six months after launching its own sparkling water brand, Bubly, the cola giant announced Monday that it is buying SodaStream International, the Israeli company behind the do-it-yourself soda maker, for US$3.2 billion (NZ$4.8 billion).

Seltzer sales have grown rapidly in recent years, as brands like La Croix, Topo Chico and Polar become household names. Much of the appeal, consumers say, is that the no-calorie, no-sugar drinks offer a healthful alternative to traditional sodas and diet drinks. And there is no shortage of options, as companies race to add alcohol, caffeine, even bacon flavouring to fizzy waters.

"Americans have been drinking seltzer for over a century, but we've hit a tipping point," said Barry Joseph, author of the book "Seltzertopia: The extraordinary story of an ordinary drink." "Seltzer isn't just a beverage anymore, it's become a lifestyle choice."

Much of that, he said, is thanks to the skyrocketing popularity of La Croix, which in the past decade has reinvented itself "from a drink for Midwestern soccer moms to a hip, cool drink for millennials." The brand, founded in La Crosse, Wisconsin, in 1981, has become the poster child for seltzer's comeback. (Shares of La Croix's parent company, National Beverage Corp., have grown nearly 600 per cent in the past five years.)

Sales of seltzer have grown 42 per cent in the past five years, according to Beverage Marketing Corp., as Americans trade in sugary soda for healthier options. U.S. soda consumption, meanwhile, is at a 31-year low, according to data from trade publication Beverage Digest.

Soda giants are taking note: Coca-Cola last year paid US$220 million for Topo Chico, a 120-year-old brand of seltzer with a cult following. The investment appears to be paying off: Sales of Topo Chico rose 30 per cent in the first quarter of this year, even as the company's overall sales declined 16 per cent.

"Consumers still like bubbles, they want carbonation, but they want it in a healthier product," Gary Hemphill, the managing director of research for Beverage Marketing Corp., told The Washington Post in 2015. "Those products really fit where the consumer wants to be."

Americans have been drinking seltzer - and making it at home using carbon-dioxide cartridges - since the early 1900s, according to Joseph. Soda shops helped popularize drinks like egg creams (which are made with carbonated water, milk and flavoured syrup) that families then re-created at home. But demand stalled during World War I and continued to "decline precipitously by the decade," Joseph said, until the 1970s, when Perrier expanded into the United States.

Since then, the drink has enjoyed a steady rise. SodaStream entered the U.S. 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 per cent so far this year.

- Washington Post