The great ones disrupt their own. If you don't do so you can end up getting crushed by those who do.
The problem is that on up days like today you find yourself saying "don't people get what we are trying to do? We are trying to guide our company not for the present, but for the future.
Two companies, PepsiCo ( PEP) and Constellation Brands ( STZ) , right now, real time, are disrupting their own businesses and they are getting no credit whatsoever for doing so. That won't always be the case. It's just what's happening in real time, right now, that makes it daunting to disrupt your own company.
This morning's $3.2 billion purchase of SodaStream ( SODA) by Pepsico is breathtaking both in its simplicity and its forcefulness.
Sodastream used to make cannisters that gave you flavored sodas and by all counts it was a bust.
But then a couple of years ago Danny Birnbaum, CEO of SodaStream, realized what the fabled millennials really want. He had recognized that younger people had soured on artificial flavoring. So SodaStream had to go to fizzy water. They are now the largest carbonated company in the world.
The reasons for that? I think the millennials have embraced the new SodaStream because it's pretty much everything that PepsiCo isn't. Let's check off the boxes. You don't have to go to the store. The machine and the canisters are all available online just where the millennials want it. Millennials hate dirty labels filled with chemicals. SodaStream has no labels. You use your tap water. Soda at the store comes in plastic. Millennials despise plastic.
So consider it a hedge, a hedge on carbonated soft drinks which, even though Pepsico is starting to make inroads against a rejuvenated Coca Cola ( KO) , I would argue that SodaStream is the answer and the price tag isn't all that big given the dominance that SodaStream has worldwide -- Germany does six times that of U.S. in part because if you have ever been to Germany you are a pariah if you don't recycle correctly and use anything but glass.
Here you don't even need glass.
But there is an issue here and it is an important one and that's how much can you really disrupt. Danny came on Power Lunch a couple of years ago and talked about how plastic bottled water is one of the biggest marketing scams out there. Hmmm. Aquafina and Life WTR are regular and premium waters that would be what Danny's blasting. He ran a three minute ad on Youtube showing how shamed someone should feel if they buy bottled water. It is hilarious because it uses a Game of Thrones theme to be really eye-catching.
That said, I think it needs to be taken down pronto unless Pepsico is so wanting to keep the brands separate that almost no one will know the difference.This isn't like when Unilever ( UN) shelled out a billion bucks to buy Dollar Shave Club back in 2016 to disrupt the shaving industry with a subscription model that doesn't require you to track down a salesperson at a CVS ( CVS) who will open a display with a key that takes out a giant piece of plastic that also has a razor or a blade in it.
Like Danny Birnbaum, Dollar Shave attacks the competitors head on with its founder and chief wild man Michael Dubin just character assassinating the competition. But Unilever isn't trying to disrupt its own wares, it's disrupting Gillette. Fortunately for PepsiCo Danny's category is complementary as Pepsico isn't known for its sparkling water, except for its new bubbly which has been selling like mad. Perhaps that's one of the reasons this disruptive deal happened so quickly. When I asked Hugh Johnston, PepsiCo's CFO, about why now-thinking that a year ago SodaStream's stock was at $59 and it is now at $144 he said he wanted the proof of concept and it sure came recently in a series of blow-out quarters with the last one being one of the strongest I have seen of any consumer packaged goods stock.
In other words, Pepsico did the right thing. Short-term maybe it's a bear, long term it's a bull.
But as revolutionary as this $3.2 billion investment might be, it palls in comparison to the amazing, stunning $4 billion acquisition by Constellation of enough of Canopy Growth ( CGC) to take its ownership stake to 38% on the way to making it a true subsidiary of the company that sells Modelo and Corona among many other spirits.
I know that Constellation's stock has gone down because of the buy and the cessation of its buyback. I know that CEO Rob Sands is truly playing a Gretzky game, something named after the great Wayne Gretzky because he famously said, "skate to where the puck is going not to where its been."
Sands and Canopy's CEO, the equally visionary Bruce Linton, see what's happening: marijuana is going mainstream. It will be legal in Canada and it won't be some backroom store run by a mom and pop cash business where the warnings are there for all to see and you are fearful for crossing state lines with the stuff.
No, this is nothing more than a wholesale change in how medicine, whether it be for pain--goodbye opiates-or sleep or anxiety or MS or psoriasis-or pleasure-a terrific (presumably ) high without a hangover or many calories.
To not think this is the future worldwide is to have your head in the sand. Now, the fact is that Constellation's beers account for almost all of the total beverage growth in its category. But Sands and Linton know that we might, in this world, experience what may be the end of Prohibition. Sure it is legal in some countries. And it's going to be legal in Canada in the fall. But how can you bet against this taking off.? How can you not want to be there when prohibition ends? How can you risk not owning the best Cannabis refining operation, the best distribution and the best drug equivalents? Sands had to disrupt Constellation to win in what will soon be the new world.
It's never easy to disrupt? I remember when Adobe ( ADBE) , the great cloud marketing and commerce company, went to a software-as-a service (SaaS) model. It cratered the stock of a nice company with good aspirations. Now it is a huge subscription business and it makes fortunes for shareholders and is a $122 billion stock. That's incredible.
I have seen Clorox ( CLX) take risks buying companies that have to do more with health supplements, far afield from traditional consumer products but I think it is paying off.
And I have seen whole companies transform themselves. Consider CVS's gutsy move to buy Aetna ( AET) , totally transformative and necessary in a world where Amazon ( AMZN) might turn their old fashioned drug store business upside down and destroy the margins.
Or consider how Walmart ( WMT) and Nordstrom ( JWN) have thrown billions of dollars at digital and having no instant payoff and then, suddenly it all works. But then consider Sears ( SHLD) and JC Penney ( JCP) and how they didn't keep pace.
So, I say celebrate the disrupters. Own their stocks when they settle down and the hyper growth seekers go elsewhere. But understand that if they didn't make these gutsy moves the competition will. And that's what disruption is all about.
