In the face of disappointing results and a shift in its business model to match the mood of more health-conscious customers, SodaStream will shut down its controversial plant in an Israeli settlement in the West Bank, the company said today.
A company spokesperson told Bloomberg News it would move its West Bank operations to Northern Israel by "late 2015." The spokesperson told Bloomberg the decision was "purely commercial." The company said in a presentation that it would relocate the Mishor Adumim facility and one in Alon Tavor in Northern Israel. It will consolidate its manufacturing in its plant in the Negev desert, in Southern Israel. Relocation costs are expected to be $9 million.
The Mishor Adumim plant had been at the center of a campaign to boycott the company. Its celebrity spokesperson Scarlett Johansson even split from the U.K. charity group Oxfam after the group criticized SodaStream for maintaining a plant within an Israeli settlement. The company has made extensive efforts to defend the plant against international criticism.
Despite the company's claims that the decision to close down the plant is purely a business decision, Code Pink, the activist group that has long called for boycotting the products, claimed it as a victory. Nancy Kricorian, who runs the boycot campaign for Code Pink, said that SodaStream was the "poster child for the evils of illegal settlements and occupation profiteering" and that the decision to shut down the plant was "a big win." Kricorian said Code Pink has not yet decided whether to continue to boycott if SodaStream completes the relocation as scheduled.
"We invite true humanitarians to join us in our relentless effort to build a bridge between Israelis and Palestinians," the company says on its website. The site also says SodaStream employes 1,300 people, including 950 Palestinians and Israeli Arabs, and that the plant provides "sustenance to about 5,000 Palestinians that depend upon employment in the facility."
Beyond protests against its settlement activities, the company's business prospects have turned south and it admitted as much when it released its earnings for the third quarter along with a new "growth plan" today. SodaStream's U.S. business took a hit as Macy's decided to no longer carry its products. (An anonymous source told the Washington Free Beacon the decision was not linked to the boycott efforts).
The company said it "outgrew our internal capacity and expanded our product range resulting in operational complexity and erosion of our profit margins" and that, in the U.S., its user growth had "dramatically slowed" even though current users still use the products frequently.
Outside the U.S., growth has also slowed. In the third quarter, revenue from the Americas was $29.5 million, down from $49.8 million last year, a 41% drop. Overall, its soda marker starter kits, which get customers started down the road of buying new flavors and carbon dioxide refills, saw a precipitous drop, with 818,000 sold in the third quarter compared to 1.2 million in the third quarter of last year, a 32% drop.
The company's stock continued its slide, trading down over 2% to $21.40 in early afternoon trading. The stock has fallen more than 50% this year. In June 2013 its shares were trading at over $70.
The company has to deal with a broad turn away from sugary drinks in the U.S., what it describes as a "landslide shift towards health and wellness." This will mean a new marketing campaign, "Water Made Exciting," all part of an effort to "reinforce the important benefits of using SodaStream and revive our brand heat." The company also said it had to bring in new executives and overhaul its procurement infrastructure and "consolidate operational structure for simplicity and efficiency and reduce headcount where appropriate." It is also planning to introduce new bottles that look less like its "detergent" bottles today.
Overall, the company's revenue was $125.9 million for the third quarter, down from $144.6 million last year, while profit dropped to $9.5 million from $16.4 million. A few weeks ago, the company projected $125 million in revenue in the quarter and operating income of $8.5 million. "As we previously announced, our third quarter performance was pressured by challenging selling conditions for soda makers and flavors primarily in the U.S.," the company's chief executive Daniel Birnbaum said in a statement.