Major news came out of PepsiCo recently when the company decided to allow about 25 percent of its Gatorade distribution to go into its DSD system.
Consumer products analyst Bill Pecoriello called the switch from warehouse to DSD one that “made sense” for both PepsiCo and its bottlers.
It means that both PepsiCo’s own bottlers and its network of independent wholesalers will be able to sell the category-leading sports drink to “small format” retailers like convenience stores, dollar stores, and other up-and-down-the-street accounts. Bottlers have long wanted access to Gatorade, which has been distributed up until now through larger-format, warehouse networks along with other Pepsi-owned brands like Naked Juice and Tropicana.
The move to DSD networks, expected to begin around January 1, comes with another trade-off: the removal of case-packed bottled water from the DSD system and into warehouse. The trade is another one that distributors should like, according to Pecoriello.
“Exchanging negative margin case pack water (a very ugly business in decline) and a more attractive on-premise delivery business in exchange for a high margin Gatorade business in which PEP appears ready to invest in heavily over the coming years is a good trade off,” he stated in a release.
That investment became apparent earlier this year as PepsiCo began a major re-launch of the Gatorade brand, its second in an 18-month period. The company has been active in revamping its entire sports drink portfolio, as well, adding Muscle Milk and now O.N.E. coconut water to its distribution system.
The move into the DSD system for Gatorade will provide a single sales force for all its brands in small channels and will allow PepsiCo to reap approximately $150 million in previously unanticipated savings, according to Pecoriello. •