Almost half a century ago, Gatorade made its name as a sports drink. Then PepsiCo made a fortune selling Gatorade cheaply in grocery stores and convenience stores as just another soft drink. Now Gatorade is going back to its roots:
Determined to walk away from discount-driven sales—or “rented volume,” as [Gatorade president Sarah] Robb O’Hagan calls it—the company decided in 2008 to turn away from couch potatoes who chugged Gatorade to wash down a cheeseburger or cure a hangover. Analysts gasped during a 2009 earnings call when PepsiCo Chief Executive Officer Indra K. Nooyi said such consumers — who had by then reverted to cheaper beverages like soft drinks and tap water — “didn’t really have a right to exist in the Gatorade world.” Harsh, perhaps, but it was Nooyi’s way of saying PepsiCo wasn’t selling out anymore.
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“The huge aha! for me was, ‘We’re an athletic performance brand, we’re selling in convenience stores, grocery stores, Wal-Mart (WMT), but we don’t even show up in a sporting goods store, in a cycling store, in a place where an athlete actually goes to equip themselves to play sports,’?” she says. Robb O’Hagan has since brought Gatorade back to athletes and to the science that gave the brand its credibility.
First developed by researchers at the University of Florida in 1965, Gatorade took off quickly with college and professional athletes because it has a formula proven on the playing field. By 1983 it had became the National Football League’s official sports drink. In 2001, PepsiCo bought the $2 billion-a-year brand, and the soft-drink and snack giant spent the better part of the decade pushing Gatorade through its massive distribution system. PepsiCo introduced hundreds of flavors and package deviations, including a breakfast version, Gatorade A.M., pitched by Indianapolis Colts quarterback Peyton Manning. The strategy made sense at the time, Robb O’Hagan allows, but it crashed along with the economy in 2008. In 2007 the sports-drink category had mushroomed to $8 billion a year in the U.S., and Gatorade controlled 80 percent, according to industry newsletter Beverage Digest. Within three years, the sports-drink market had declined by $1 billion, and Gatorade’s market share had eroded to 74.8 percent. Meanwhile, serious athletes were turning away from sports drinks to a raft of emerging products, including Jelly Belly Sport Beans, Bonk Breaker Energy Bars, and the Honey Stinger energy waffles endorsed by Tour de France champion Lance Armstrong. They bought Carbo-Pro powders in large tubs. Gatorade had mostly conceded these markets. “It’s our role to make anything to drive an athlete’s performance that goes inside their body,” Robb O’Hagan says, drawing a comparison to her former employer’s strategy. “Nike’s all about what’s outside your body. We’re about what’s inside.”
They can expect some challenges educating the customers about their new product lines:
Naturally, Gatorade can’t make individualized products for everyone; the company has to find common denominators. Its solution so far has been the G Series. The core line is targeted to “performance” athletes — competitive high school swimmers to adult basketball league players — who make up nearly a quarter of the U.S. population, Robb O’Hagan says. The series includes a 4-ounce carbohydrate-loaded “pre-game fuel” drink pouch designed to be easily torn open and squeezed into your mouth. The flavored recovery water in the series is packed with protein and carbohydrates.
G Series Fit moves down the ladder a bit and is intended for the roughly 55 million Americans aged 18 to 34 who exercise three times or more per week. These people work out to stay healthy, without necessarily competing. The supplements in Fit are scaled back to match less intense workouts. This line is where Gatorade’s departure from beverages is most pronounced so far: The main offering is a fruit-and-nut bar segmented into bite-size, 50-calorie squares. A fruit smoothie provides an after-workout dose of protein to help the athlete recover sooner.
G Series Pro, meanwhile, is a consumer version of products Gatorade had already been producing for professional athletes. A recovery bar contains whey and casein from milk protein for muscle growth. Vitamins and minerals in the bar boost muscle metabolism, Gatorade says, while carbohydrates help store energy in muscles and the liver in the form of glycogen sugar. Gatorade soon will roll out Pro chews — essentially Gummi Bears for endurance athletes — to compete with Gu Chomps and Clif Bloks that are a staple on long-distance courses. The company also sells two all-natural versions of its new drinks that use noncaloric sweeteners. Gatorade drinkers accustomed to buying 32-oz. bottles for 99¢ may experience sticker shock when it comes to the newest products. PepsiCo charges for its innovation. A 12-oz. bottle of the Pro pre-workout carbohydrate drink sells for $2.99.
This product lineup demands an equally dramatic shift in how and where PepsiCo distributes Gatorade in stores. Before Gatorade’s transformation, sales were split fairly evenly among grocery chains, club stores such as Wal-Mart, and convenience stores. “We are setting a different bar for how we are looking at retail,” says brand marketing Vice-President Fairchild, whom Robb O’Hagan recruited from Nike last year.
Gatorade has taken its Pro series into cycling and running specialty stores that cater to endurance athletes as well as health supplement stores such as GNC. “People come in and buy nutrition from me every day and spend hundreds of dollars,” says Julian Angus, 40, owner of Tempo Cyclery in Sarasota, Fla., who remembers a time last decade when only a few companies made products for elite athletes. Margins rival those of clothing and accessories, he says. Still, Angus was skeptical when Gatorade first pitched him on the products and started sending displays. He worried that customers, not realizing these were new offerings, would think they were being charged boutique prices for the same old drinks they could buy at the supermarket.
Performance athletes make up a quarter of the US population? That seems optimistic.
Gallup’s Health and Healthcare survey asks Americans to say how frequently they participate in moderate sports or recreational activities, vigorous sports or exercise activities, and weight-lifting or weight-training.
Approximately 6 in 10 Americans indicate they regularly engage in moderate exercise (59% in 2007); about half as many regularly engage in vigorous exercise (32%); and about half as many as that report doing regular weight training (15%).
I would say those self-reported numbers set an upper bound.