What's Happening Across Beverages

DEPT. OF PROGNOSTICATION

We hate to say we told you so… but it looks like the functional beverage explosion is starting to eat across categories. Coke’s vitaminwater, for example, poses the chief market-share threat to Pepsi’s Gatorade, according to a Deutsche Bank analyst. But Gatorade’s G2 may help the hydration drink giant fend off competitors.

Deutsche Bank analyst Marc Greenberg said Gatorade has become increasingly reliant on “heavy users” while more casual sports drink consumers drifted to other brands – particularly vitaminwater.

Greenberg said during a Thursday afternoon conference call that Gatorade is still dominant, and retailers still consider it a “cornerstone brand,” but the brand’s growth lagged behind that of the category in all four quarters of 2007. Gatorade even saw their volume shrink in the second quarter of last year.

Gatorade, he said, needs to find “ways to leverage the brand in new ways” and “new occasions and ways to broaden in a broadening category.”

G2 – Gatorade’s lower-calorie fortified water –could help. February supermarket scanner data showed that G2 helped Pepsi rally its share of the sports drink market and grow its volume by 11.6 percent over their volume at the same time last year, according to Morgan Stanley Analyst Bill Pecoriello.

However, Greenberg had lower hopes for Gatorade’s Tiger line extension, built on a partnership with Tiger Woods. The analyst said he not only feared that aiming a product directly at golfers could divide Gatorade’s product line, but could also divide the hydration drink segment.

WORST OF TIMES AT COTT

Poor Brent Willis. The erstwhile CEO of Cott Corp. never really had the chance to earn his salary at the private-label drink maker. Not to say he didn’t MAKE a nice salary – $3.6 million for about a half-year’s work 2006, according to the Canadian Broadcasting Corp. – but earn it? If you look at what’s been happening at Cott lately, not so much.

And the company decided that Willis wasn’t quite worth the investment, either. He was shown the door in the wake of a disastrous 2007 and an even worse start of the year, in which the company lost shelf space and merchandising support at key account Wal-Mart.

By the time Willis was replaced by director David Gibbons, Cott shares were worth about 1/10th of their 52-week high of $19.70. The company has struggled in the wake of consumer tastes shifting away from its bread-and-butter CSDs. While it moved to sign up UFC star Rampage Jackson (pictured) for an energy drink and attempted to market tea and water, the optimistic view of Willis – he preached the company’s international tendrils – couldn’t reverse the gloom and doom that has dogged Cott for years.

TRADING UP SLOWS DOWN

While spirits, wine and beer continue to grow, that rate of growth is dropping, according to a study by the Beverage Information Group.

Wine and spirits, which have led a decade-long overall increase in beverage alcohol consumption, only went up 4 percent and 3.2 percent, respectively, in 2007 – way off previous year advances. Beer also grew, but at 1.2 percent.

The report blamed the weakening U.S. economy as the major contributor. That slowdown appeared to be weakening on-premise sales more than off-premise, but if the country continues to spiral toward a recession, even the lower-markup off-premise channels may be affected.

ANHEUSER-BUSCH ENTERS THE OCTAGON

Talk about moving into the sweet spot. Anheuser- Busch has signed on as the exclusive beer sponsor for the Ultimate Fighting Championship. The move KOs previous sponsor, Mickey’s Malt Liquor.

Bud Light’s three-year deal with Zuffa, LLC, owner of the UFC brand, moves the beer into a fast-growing spectator sport.

“UFC has developed a huge following in recent years and is wildly popular with the 21-34 year old fans we want to reach,” said Tony Ponturo, vice president, global media and sports marketing, Anheuser-Busch, Inc. “The number of people attending live events, buying the pay-per-views and talking about UFC around the water cooler continues to grow. It’s just a great place for us to be.”

But it’s also one of a pair of big deals that are buoying Mixed Martial Arts as a sport – competitor league EliteXC will be showing featured fights during prime time on CBS television. While the deals are unrelated and the leagues compete, the overall effect is to raise the profile of MMA.

“Landing Anheuser-Busch and Bud Light is huge for us, our fighters and especially our fans,” said Dana White, UFC president. “We’ve got the number one selling beer in the world and one of the top marketers in all of sports as our sponsor. If our TV ratings, pay-per-view buys and venue sell-outs weren’t enough, this definitely cements UFC as a major player in sports business.