PepsiCo CEO downplays threats to Gatorade's market dominance
Gatorade Zero, PepsiCo's first sugar-free version of its popular energy drink, debuted in April and is "off to a great start," CEO Indra Nooyi said during a call with analysts about the company's recent earnings report. She discussed what she called the brand's strength and resiliency.
Besides offering the new sugar-free version, PepsiCo is building on the brand's reputation by introducing G2, a reduced-sugar version with half the calories and carbs, Gatorade Energy Chews for athletes to consume prior to exercising and new flavors of Gatorade Flow Thirst Quencher to help recover after a workout.
"The underlying Gatorade trademark is very, very strong," Nooyi said during the call. "And Gatorade always attracts new players into the marketplace and they come in with either lower prices or they try to come in and build distribution and they might take a few share points in any quarter or two. But then, over time, if you look at it over a period of five or seven years, the Gatorade franchise has been extremely resilient and has basically held onto its leadership position."
While Gatorade is still the leading energy drink in the country — with about 75% of the market — it appears to be facing headwinds as a brand and could use a boost of energy and innovation from PepsiCo to keep it on top.
Gatorade's sales have slipped as consumers shift to bottled water, tea and other healthier products. According to The Wall Street Journal, the brand posted its first U.S. sales drop since 2012 when U.S. sales fell 0.5% to $5.9 billion last year. It faces competition from Coca-Cola's Powerade, a distant second in market share that had relatively flat sales in 2017, and BodyArmor, a better-for-you sports drink whose sales doubled from 2012 to 2017.
Some speculate that Cola-Cola might buy BodyArmor from the newly merged Keurig Dr Pepper, which could create a competitive conundrum for PepsiCo. And, since Gatorade comprises about 20% of PepsiCo's North American drink volume, the company needs to keep the popular brand in good shape, boost sales and push for new audiences.
“It’s definitely been a challenging year for sports drinks,” Howard Telford, head of Euromonitor’s soft-drinks research, told The Wall Street Journal in January. As consumers continue to turn to healthier products, “I’m not sure whether Gatorade would be the first thing they’d reach for," he added.
The brand may do well with its G2 reduced-sugar product and its new Gatorade Zero, but PepsiCo's 2016 debut of Gatorade Organic to compete with Coca-Cola's Honest Sport failed to resonate with consumers. Using organic cane sugar and removing artificial colors weren't enough to do the trick and, according to Nielsen, sales came to about $20 million between late summer 2016 to the first of this year. That compares to $7 billion for sales of all Gatorade beverages during the same time period. It may be that, like General Mill's Trix cereal, some consumers like bright colors in their foods and beverages even if they come from a laboratory.
Some strong brands could probably experiment with innovations and still keep their fan base. One may be Annie's, which General Mills has expanded from its origins in macaroni and cheese, sauces and dressings to crackers, cereal, soup, yogurt and organic cake mixes. And, after hitting $1 billion in sales, Albertsons plans to expand its O Organics private-label brand by 500 or more new items this year. Both companies know they have a good thing going with those brands and that well-planned extensions have a good chance of tapping into existing loyalty and even winning new customers.
Only time will tell whether that's the case with Gatorade. PepsiCo may be admitting that sugary sports drinks are losing their popularity and the company needs to find new ways to reposition the brand. A new BodyArmor ad campaign is zeroing in on that sentiment by having Houston Rockets basketball player James Harden march into the basement of a game venue wearing a Colonial-era costume with a similarly dressed drummer beside him. The narrator says, "James Harden wouldn't go to the game wearing outdated fashion. So why would he choose an outdated sports drink?" Harden looks at the camera and says, "I wouldn't." The tagline then says, "Thanks, Gatorade. We'll take it from here."