While PepsiCo doesn't break out sales of its various trademarks, Gatorade is its second-biggest selling beverage [image-nocss] by volume after Pepsi-Cola and a major driver of its North American beverage profits.
Data from Beverage Marketing Corp., New York, shows total Gatorade sales dropped 2.5% in 2008, and while the beverage-data company does not have statistics for the first half of 2009, senior vice president Gary Hemphill said he expects the trademark and the category overall continue to slide.
"[Gatorade was] down last year, and 2009 has been a continuation of a challenging environment for the brand," Hemphill told CSP Daily News. "Gatorade, the total trademark, was down 2.5% in 2008, but it's down more this year."
Hemphill said he expects the No. 2 brand of sports drink, Coca-Cola Co.'s Powerade, also is struggling. "Powerade was down 5% last year. I think Powerade is faring a little better this year though because Gatorade is down double digits this year."
Convenience-store sales data from Information Resources Inc., Chicago, shows total Gatorade dollar sales are down about 10% for the four weeks ending July 12, while Powerade dollar sales are down 5.5% for the same period.
The common denominator, as with so many things today, is the economy, said Hemphill. "If you look at the overall market for refreshment beverages, it was down in 2008, and it was likely down the first half of 2009," he said. "Carbonated soft drinks, while their decline has been more moderate this year, they've continued to decline, bottled water's been essentially flat, and a lot of other categories are not performing as well as they have historically. And the single common thread throughout has been the weaker economy."
Specific to sports drinks, PepsiCo CEO Indra Nooyi said she's recently heard tales of how the economy is affecting c-store traffic.
"[C-store CEOs told me] one of the things that used to happen is the construction worker used to pull up with the pickup truck at 6 or 6:30 in the morning, buy six or seven bottles of 32-oz. Gatorade, a few bags of Doritos, throw it in the truck and pull off to the construction site," she said during a July 22 earnings conference call. "With housing starts being down as much as they are, that construction worker is not coming through the c-store to pick up that Gatorade. So there's no question that we have lost that active, first occasion related to the construction worker who was toiling in the hot sun."
Added John Compton, CEO of PepsiCo Americas Foods, "The combination of higher unemployment...with the lower housing starts is certainly impacted the c-store channel, and we've seen that on the snack business here in the last three or four months particularly."
C-store retailers have seen the change too. When asked "Have you seen a drop off in sports drinks, and Gatorade specifically, over the past six months?" 56% of respondents to a Kraft/CSP Daily News Poll said yes, and 33% said the category is flat. Only 11% said the category is up in their stores.
How does Pepsi hope to rise past this issue with Gatorade? Nooyi said it's a matter of acknowledging the circumstances that led to past growth, but then going back to the original Gatorade customer and accepting slower growth than the brand has seen in the recent past.
"Until about 2007, when the Gatorade business was [growing at] very, very high clips, one of the things that the Gatorade franchise did was attract...a tremendous number of casual drinkers. Temperatures in the country were extremely warm and well above normal levels," she said. "Over the last couple of years, three things have happened. One, there's many more alternatives for the casual drinker. Two, average temperatures have been somewhat lower than they were in the four years preceding. And third, we're in a major economic meltdown, which is causing those consumers to trade down to other alternatives."
Now PepsiCo will return the brand back to the athletes who embraced it from the start.
"That core athletic user has stayed loyal to Gatorade, and the cutback in frequency of consumption is extremely small from the core athletic user," Nooyi said. "So that core athletic user is looking good and our future strategy is to provide even more effective products to that core athletic user.
"Then the question is what do we do with the casual user who came into the Gatorade franchise? Clearly some of those users have already switched to cheaper alternatives, like bottled water, tap water and in some cases even CSDs."
All of that, on the whole, should equate to smaller but perhaps healthier growth for the brand.
"We're not looking for a return to the old growth rate in the category," Nooyi said. "If the GDP improves in 2010, this category should come back to growth rate of about 0.5% to 1%. That's the expectation today."
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