Gatorade remains around a $5 billion brand overall, but suffered a 15.5% drop [image-nocss] in sales last year, its first decrease ever, according to Beverage Marketing Corp. It lost share to nearly every other type of beverage from competing sports-drink brands to tap water. Stingier consumers hurt Gatorade by opting for less-expensive drinks, but also the beginning of the company's rebranding effort under the "G" moniker a year ago at least initially came off as poorly executed, the report said.
"If you look at the volume we lost in 2009, about 50% of it not only left us, but went out of 'light refreshing beverage' segments altogether," Sarah Robb O'Hagan, Gatorade's chief marketing officer, told CPG Matters. "What we could see very clearly is that we were losing not to enhanced waters or our competitors, but to value options such as tap water and carbonated soft drinks."
Gatorade remains a "formidable franchise," O'Hagan told securities analysts at a recent PepsiCo conference in New York where company executives discussed the Gatorade brand and their new strategy.
Massimo d'Amore, CEO of PepsiCo Beverages America, told the analysts he is "positive that finally we have a distinctive position for Gatorade and that it's very differentiated, and that we're focusing on the right consumer."
According to the report, the new product-line structure carries the "G" branding.. G Series "01 Prime" is an "energy to start" beverage for consumption before athletic activity; "02 Perform" drinks include the brand's traditional Gatorade for hydration during activities, its new "G2" low-calorie hydration line, and its existing Gatorade Thirst Quencher line; and "03 Recover" drinks include 10 to 20 grams of protein per serving to help body recovery from exertion.
The new G Series Pro family, scheduled to be carried exclusively in the United States in GNC's 5,500 stores, uses the same functional logic. But it is a line that only has been available to pro and elite athletes. Gatorade is now commercializing these beverages to regular consumers as it re-tethers itself to the serious-fitness general market, the report said.
Gatorade has continued to hold onto, and even build, a predominant market share, CPG Matters said. Even Coca-Cola with its Powerade entry could not chip much away from Gatorade's 80% to 85% share of the sports-drink category.
Through 2003, the brand spoke mainly to its core athletic-consumer base through high advertising and marketing spending; only narrowly focused distribution was required. Beginning in 2004, however, PepsiCo pushed a major expansion of the brand beyond its core. It reduced Gatorade's net price and cut advertising and marketing spending, but Gatorade could successfully build its share by drawing in the "lifestyle" consumer partially because competition remained limited, and it grew hugely in distribution through mass discounters and other outlets.
In 2005 alone, sales of traditional Gatorade increased 31% in U.S. outlets measured by Information Resources Inc., including supermarkets, drug stores and mass discounters except Wal-Marts. New subbrands of basically traditional Gatorade, for hydration, kept adding to the brand's overall growth in the next few years, including Frost, Fierce and X Factor. From 1999 even through 2009, d'Amore said, Gatorade experienced a compounded annual growth rate of 6%.
But by 2007, things already were amiss for Gatorade, said the report. The entire sports-drink category had grown by about 10% in 2006 in IRI-measured outlets. But in 2007, the overall category's growth shrunk to just 4% in IRI-measured stores. And in 2008, the entire segment flattened out.
"In 2008," d'Amore recalled, "it became obvious that previous growth was unsustainable." The U.S. economy stalled badly, and as a premium-priced brand, Gatorade became vulnerable, especially among the many noncore lifestyle consumers, not necessarily athletes, who had begun enjoying Gatorade products over the previous few years.
Gatorade already had aimed toward a brand transformation in 2008 under O'Hagan, but economic woes "hit hard" at its efforts that year and last year, d'Amore said. Lifestyle users switched heavily to less expensive beverages including tap water and even carbonated soft drinks, and many casual athletes switched to regular bottled water. Gatorade's share of volume fell 0.5% among all of America's beverage brands last year, Beverage Marketing reported, while it maintained its position as the fifth-largest overall beverage brand.
The entire sports-drink category lost about 5% of sales in 2009 in IRI-measured outlets, and Beverage Marketing measured its overall decline last year at 12.3%. Gatorade was easily the biggest loser in its segment, said the report, with its sales decline of 15.5% as measured by Beverage Marketing, and its market share drifted backward significantly for the first time ever, down to about 75%.
Meanwhile, Powerade slipped only by 1% in sales last year as it edged up to about 17% of the sports-drink market. O'Hagan said Gatorade has calculated that less than 2% of its losses have gone to Powerade. But that still comprises the biggest damage Powerade has inflicted. Powerade took direct aim at Gatorade in an ad campaign noting that Powerade's new formulation including four electrolytessodium, potassium, calcium and magnesiumwhile Gatorade's formula contained just sodium and potassium.
And enhanced bottled waters did not necessarily gain during those two years, partly because of price. Coca-Cola's Vitaminwater line went hard after athletes in its marketing over the last couple of years, for example, but that brand has suffered anyway. Along with sports drinks, "value-added" water was the other hardest-hit category last year, suffering a drop in sales of 12.5%, as overall U.S. beverage sales declined by 3.1%, representing an acceleration of the 2.1% decline for 2008, as measured by Beverage Marketing.
Gatorade was not helping itself during this period, the report said. The company increased the price in 2007. And brand stewards also renamed some of Gatorade's several subbrands within its traditional hydration market. Gatorade Fierce thus became Bring It, and X-Factor was renamed Be Tough. The main thing they did right was introduce low-calorie G2 during this period, which by last year had risen to second place among all Gatorade subbrands, with $231 million in sales in IRI-measured outlets, up about 31% from the year before.
And Gatorade's first pass at reviving the brand overall, early last year, only served to mire it in further woes. The campaign began with an ambiguous question in TV spots, "What is G?" and shots of iconic athletes such as Muhammad Ali. Soon, the company unveiled Gatorade as "G," but the reasons for the change were a mystery. Executives had not shared their plans for a new brand architecture with any of Gatorade's external constituencies. Criticism from many quarters was fierce.
But "teen athlete was telling us that Gatorade was dated," said O'Hagen. "Their parents were drinking it, and so they were looking for something contemporary and relevant to them."
So now, Gatorade is refocusing on the 68 million Americans that it classifies as "performance athletes," where it already has 27% penetration. In addition, it wants to target anew the
55 million U.S. consumers that it calls "fitness athletes," where Gatorade says it has only
12% penetration.
Under the new G Series architecture, the 01 Prime product is what O'Hagan called "a concentrated pouch of energy; it has 25g of carbohydrates, three different B vitamins, and electrolytes, but, unlike typical energy drinks and at the request of athletes in Gatorade's focus groups, no caffeine.
Gatorade also has made a point of removing high-fructose corn syrup from all of its products "because it is a barrier to purchase for some athletes and also some sideline moms,"
O'Hagan said.
The various G and G2 products constitute the 02 Perform subcategory for Gatorade. And Recover anchors the 03 Recover segment for Gatorade, a drink with up to 20 grams of protein and also including carbs to aid muscles in uptaking amino acids from protein; meanwhile, water and sodium restore the body.
O'Hagan resisted the suggestion that further proliferation of products under the Gatorade brand may only exacerbate previous problems that, in part, seem related to consumer confusion caused by earlier proliferation. "What we are doing with proliferation now is coming up with very unique products that meet very different occasion needs," she said. "Over the years, we had just been adding more hydration products to the shelf. Now, for the future, we are building beachheads around workout occasionsbrand new areas for us as a brand to build business."
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