Gatorade Reshapes Brand after Decline in Market Share
By Dale Buss
Gatorade is on the comeback trail.
After suffering its first-ever significant declines in U.S. sales and beverage-market share over the last couple of years, Gatorade has reshaped its brand architecture and product lines, refocused on its historical target market of athletes, and re-tailored its approach to marketing and distribution with tactics that would have been unthinkable for the PepsiCo mega-brand even as recently as two years ago.
Gatorade remains around a $5-billion brand overall, but suffered a 15.5% drop in sales last year, its first decrease ever, according to Beverage Marketing Corp. What’s more, 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 re-branding effort under the “G” moniker a year ago at least initially came off as a badly executed flop.
“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 CPGmatters. “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, a former Nike marketing executive who joined the brand nearly two years ago, told securities analysts in March at a PepsiCo conference in New York where company executives discussed the woes of the Gatorade brand – and their new strategy for reversing them beginning this spring. “We haven’t had the right performance the last few years.” In 2009, she said, “We started a multi-year journey to turn this brand around.”
Massimo d’Amore, chief executive officer of PepsiCo Beverages America, told the analysts he’s “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.”
The new product-line structure carries the “G” branding, the next logical step with the G Series. 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 pre-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 U.S. in GNC’s 5,500 stores, uses the same functional logic. But it is a line that only has been available to the elite athletes who populate pro locker rooms for the last 15 years. Only now is Gatorade choosing to commercialize these beverages to regular consumers as it re-tethers itself to the serious-fitness general market.
One of the most remarkable aspects of Gatorade’s success over the decades was that it continued to hold onto, and even build over the years, a staggering predominance of its market segment. Even Coca-Cola with its Powerade entry couldn’t chip much away from Gatorade’s 80 percent to 85 percent share of the sports-drink category.
Through 2003 – as d’Amore explained in categorizing “eras of Gatorade growth” for the analysts – 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.
“We invested in the trade,” d’Amore said. “During that period we also had two of the hottest heat waves of the last century [in the US]. So we delivered high double-digit growth for a
few years.”
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 sub-brands 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. In fact, 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. The entire sports-drink category had grown by about 10% in 2006 in IRI-measured outlets – with Gatorade, of course still enjoying all but a sliver of the segment. 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 US economy stalled badly, and as a premium-priced brand, Gatorade became vulnerable – especially among the many non-core 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 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, a resurgent Powerade, Coca-Cola’s brand, 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 ever has done to Gatorade. Sensing an advantage that the brand had never had before, in fact, Powerade’s handlers took direct aim at Gatorade in an ad campaign early last year by noting that Powerade’s new formulation including four electrolytes – sodium, potassium, calcium and magnesium – while Gatorade’s formula contained just sodium
and potassium.
Another potential winner from Gatorade’s woes, enhanced bottled waters, didn’t necessarily gain during those two years, partly because those products are pricey as well. 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 mainly wasn’t helping itself during this period. A price rise in 2007 seems ill-timed, in retrospect. For some reason, brand stewards also went to the trouble of renaming some of Gatorade’s several sub-brands 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 rocketed to second place among all Gatorade sub-brands, 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 hadn’t shared their plans for a new brand architecture with any of Gatorade’s external constituencies. Criticism from many quarters was fierce.
But, O’Hagan explained to the analysts, “The teen athlete was telling us that Gatorade was dated. 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 many various G and G2 products constitute the 02 Perform sub-category 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 occasions – brand new areas for us as a brand to build business.”
Market Watch
U.S Organic Product Sales Reach $26.6 Billion in 2009
By Rose Anthony
U.S. sales of organic products continued to grow during 2009 despite the distressed state of the economy, the Organic Trade Association (OTA) revealed in its 2010 Organic Industry Survey. In fact, organic product sales in 2009 grew by 5.3% overall, to reach $26.6 billion. Of that figure, $24.8 billion represented organic food. The remaining $1.8 billion were sales of organic non-foods.
“While total U.S. food sales grew by only 1.6% in 2009, organic food sales grew by 5.1%. Meanwhile, organic non-food sales grew by 9.1%, as opposed to total non-food sales which had a 1% negative sales growth rate.
These findings are indicative that even in tough times, consumers understand the benefits that organic products offer and will make other cuts before they give up products they value,” said Christine Bushway, OTA’s Executive Director.
Experiencing the most growth, organic fruits and vegetables, which represent 38% of total organic food sales, reached nearly $9.5 billion in sales in 2009, up 11.4% from 2008 sales. Most notable, organic fruits and vegetables now represent 11.4% of all U.S. fruit and
vegetable sales.
Since the approval of the final National Organic Program rule published in 2000, sales of organic fruits and vegetables have grown from $2.55 billion, representing approximately 3% of all fruit and vegetable sales, to the nearly $9.5 billion level and 11.4% penetration level. Meanwhile, during that time, organic food sales have grown from $6.1 billion to $24.8 billion in 2009, jumping from 1.2% of all U.S. food sales to 3.7%.
The mass market channel had the lion’s share of organic food sales in 2009, with 54% of organic sold through mainstream grocers, club stores and related retailers. Natural retailers were next, with 38% of total organic food sales. Although still representing a small percentage of sales, farmers’ markets, co-ops and CSA (community-supported agriculture) operations gained a lot of interest as consumers increasingly look for locally and regionally produced organic foods.
In the organic non-food sector, organic supplements led, with $634 million in sales, representing 35% of total organic non-food sales, Organic supplement sales were 12% higher than in 2008. Organic fiber (linen and clothing) totaled $521 million in sales, up 10.4%, while personal care products, at $459 million, were up 3.7% from 2008 sales.
OTA is the membership-based business association for organic agriculture and products in North America. Its members include growers, shippers, processors, certifiers, farmers’ associations, distributors, importers, exporters, consultants, retailers and others. OTA’s Board of Directors is democratically elected by its members. OTA’s mission is to promote and protect the growth of organic trade to benefit the environment, farmers, the public and the economy.
Chew on This
While the economy continues to negatively influence certain shopping behaviors, one category’s bubble refuses to pop. According to recent research from Mintel, the gum, mints and breath fresheners market has seen sales growing through the recession, increasing over 10% since 2007, and is expected to continue growing through 2014.
Marketers normally use packaging to help freshen and develop a brand’s image, but Mintel’s survey respondents think functionality is key in the gum category. Nearly half people cited packaging that reseals better or is easier to open as being most important. Meanwhile, 19% of people want gum and mints to have packaging that’s better for the environment.
Innovation is not only coming by way of packaging, but also unique flavor combinations. Wrigley’s well-known Orbit brand of gum has launched innovative flavors, such as: Sangria Fresca, Maui Melon Mint and CitrusMint. According to Mintel’s research, this is just what gum chewers want: 43% say they like to try new brands or flavors because they like the variety and 13% try new brands or flavors because they have yet to find one they love.
APRIL 2010
P&G Aims to Make ‘Green’ Mainstream
By James Tull
The notion of helping the environment by buying “green” products appeals to many consumers. But there are significant stumbling blocks that stand in the way of sales, according to research by Procter & Gamble.
First, shoppers are often confused by what products are earth-friendly and what aren’t. Also, many environmentally-conscious products don’t work as well as traditional ones, making potential buyers hesitate. Finally, “green” products are typically more expensive.
Proctor & Gamble believes these perceptions can change. The Cincinnati-based consumer products giant is expanding its Future Friendly initiative launched last year with the goal of helping mainstream consumers save water, waste and energy at home.
The vanguard of the initiative consists of P&G’s most trusted and recognized brands like Tide, Pampers, PUR, Duracell, among others. Future Friendly-labeled products will begin to appear on retailer shelves early this month. There will be significant in-store signage and educational displays in major retailer channels, including more than 15,000 grocery and club store locations nationwide. A second wave of the program in the fall will expand its consumer and retailer reach.
“With Future Friendly, we’re trying to educate ‘mainstream’ consumers on how to conserve natural resources in their homes,” said Melanie Healey, P&G Group President, North America. “These consumers don't want any perceived trade-offs in performance and price. Instead, they want to purchase the brands they already know and trust and understand how using these products, and adopting other simple behavior changes within their homes, can help them lower their impact on the environment.”
Healy says the initiative will help P&G leverage opportunities to save environmental resources, help consumers get even more value out of the same products they know and trust, and open new doors for innovative products and solutions that improve their lives.
How will it work? To use an example, nearly 80% of the energy used in the typical load of laundry is in heating water at the consumer’s home. By washing in cold water with a detergent formula for that application, such as the P&G’s own Tide Coldwater, consumers can conserve energy and help reduce their utility bills. Starting in April, Tide Coldwater will carry a Future Friendly seal to indicate its energy-saving capabilities.
In addition, a television campaign began airing nationwide last month. Also, P&G’s April edition of its BrandSaver newspaper supplement, which includes delivery to more than 50 million households, will feature information and coupons for Future Friendly products.
Other elements of the initiative include a full suite of digital and social media engagement activities, a P&G employee communications campaign, signature event sponsorships and other programs in partnership with experts in conservation education.
The company conducted an extensive survey and found that many gaps had to be bridged in order to bring green products more into the mainstream. The key findings included:
- Three of four (74%) poll respondents said they would switch to another brand if it didn’t cost them more money to be more earth-friendly. Almost 70% claimed they would recommend the product to others.
- More than a third (37%) cited a lack of information as the top reason that prevents people from living a more environmentally friendly lifestyle.
- The top motivator towards reducing waste, sparing energy and conserving water was a product that would save them money (64%). Preserving resources for future generations placed second at 56%.
In addition to identifying a need among its consumer base, P&G had the confidence of
knowing that the Future Friendly initiative had already been a success in other parts of the world. Indeed, it has been operating as a multi-brand effort in the United Kingdom and Canada since 2007.
Future Friendly’s introduction to U.S. consumers occurred during a pilot executed in Cedar Rapids, Iowa that launched on Earth Day in April 2009. The results, along with the data gleaned from its extensive consumer research as well as key input from stakeholders, allowed the company to tweak and refine the initiative.
“Consumers use our products billions of times every day,” said Healy, underscoring the power that P&G brings to the initiative.
