Gatorade finding consumers have a thirst for—lots of other drinks
Gatorade, long the dominant player in the sports drink world, is losing ground.
The erosion of its market share is slow but steady, and continued through a blockbuster year of high-single-digit sales growth in 2020. Gatorade's share of retail sales fell to 67.7% in 2020 from 76.6% in 2015, according to research firm Euromonitor.
The loss of market share does not necessarily spell death for the PepsiCo-owned and Chicago-based brand, as the sports drink category itself has expanded, to almost $9.3 billion in 2020 from $7.4 billion in 2015.
But where the 56-year-old brand once stood practically alone as a healthy alternative to soft drinks, hydration options now abound. New brands that bend the definition of a sports drink are flooding the market, pulling in new consumers.
Experts say Gatorade would be wise to watch its back, especially at a time when consumer behaviors are changing so rapidly.
"This is almost like an old-school '60s example of Hilton or Budweiser . . . where you have such dominant market share it just opens your flanks," says Kevin McTigue, a clinical associate professor of marketing at Northwestern University's Kellogg School of Management. "It's hard to defend all the walls when you're that big."
Only 16% of adults consider themselves athletes, the consumers toward whom sports drinks were originally targeted, according to a report from research firm Mintel. But wellness trends have and will continue to expand the category.
Gatorade has focused on innovation and worked to snag some of those new buyers. General Manager Brett O'Brien says in a statement that the company's almost three-year-old Gatorade Zero line exceeded $1 billion in sales in 2020. That number would elate any new drink brand.
"As a brand rooted in sport, we know competition makes us better," O'Brien says in a statement. "But the way we'll continue to win is by focusing on athletes—showing them that we understand them better than anyone else, and delivering innovations, like Bolt24 and Gatorade Zero, that prove it by helping them perform their best."
The company also has a new chief marketing officer, former Nike executive and National Football League player Kalen Thornton.
The number of smaller beverage companies is increasing, and they're swooping in and pilfering small segments of Gatorade's customers, McTigue says. Experts point to Mexican brand Electrolit as an example. It recently broke into the U.S. market and is popular among Hispanic consumers.
Gatorade must choose its battles wisely, and not spread itself too thin, McTigue says. That means deciding which segments to let go.
"Gatorade is still trying to be pretty good for everybody," he says. "When you're pretty good for everybody, you end up not being perfect for anyone."
COVID has fueled consumer desire for functional drinks that do more than just hydrate after a workout. Performance energy drinks, which have caffeine and other added ingredients, exploded last year while sports drinks struggled to keep up, according to a Euromonitor report.
There are also alkaline waters, protein waters, vegan protein waters and more.
"The consumer is really the one that's shaking this up," says Duane Stanford, editor and publisher of drinks industry newsletter Beverage Digest. "The consumer is saying, 'I want to try different things. I want different types of ingredients. I want different hydration for different times.' "
The biggest threat to Gatorade's prominence is a company only a fraction of its size but with some big backing: New York-based BodyArmor.
The decade-old company has grown to 9.3% market share in 2020 from 0.5% in 2015, according to Euromonitor. Retail sales of the company's BodyArmor and BodyArmor Lyte sports drinks passed $1 billion in sales in the past year, BodyArmor President Brent Hastie says.
Comparatively, Gatorade had more than $6.7 billion in retail volume sales last year, up from $6.3 billion in 2019, says Morningstar analyst Nick Johnson. Powerade, the No. 2 player in the sports drink world, was at about $1.66 billion in 2020, up from $1.65 the year before.
Hastie says BodyArmor isn't necessarily stealing market share, but creating it. "The vast majority of our growth are new consumers coming into the category, trading up from water or other beverages they had before," he says.
BodyArmor, whose tagline is "More than a sports drink," also has an alkaline sports water and a new sports drink with caffeine. Experts say it has done well tapping into emerging health trends in recent years, particularly the desire for hydration beyond workouts.
BodyArmor last month launched an ad campaign featuring singer Carrie Underwood, a deviation from pro athletes like soccer star Megan Rapinoe and tennis phenom Naomi Osaka it has used in the past.
Underwood, who has her own athletic apparel brand, fitness app and a book about eating well, is "perfect" for building an active hydration play, Hastie says.
Of course, Gatorade has also encouraged its customers to hydrate off the court. It sells products that play into emerging trends, too, with added caffeine, zero sugar and more.
The sports drink battle could ultimately come down to two beverage giants: Coke and Pepsi. In addition to its stake in BodyArmor, Coca-Cola already owns Powerade. But it is miles behind and has not posed much of a threat. Euromonitor data shows its market share dropped to 13.7% in 2020 from 18.2% in 2015.
Coke also has an option to increase its stake in BodyArmor this year and seems poised to do so. The company recently notified the Federal Trade Commissiont of its intent to take a controlling stake in BodyArmor, as first reported by Beverage Digest last week. "If completed, the transaction would leave Coke with the second- and third-largest sports drink brands in the US, creating additional retail leverage for Coke against category leader Gatorade," the publication reported.
BodyArmor could be "a dream come true" for Coca-Cola, according to a recent report from advisory firm Evercore ISI. It says BodyArmor is "in a league of its own" and has the potential to become a multibillion-dollar brand.
"We see BodyArmor as a premium lifestyle brand, representing the healthy lifestyle that many people aspire to, not 'just' another sports drink or functional hydration beverage," the report says. "We believe that just as sneakers have long moved beyond the playing fields, the right sort of sports drink will do the same for beverages. And it's already happening."
Ad Age contributed to this report.