Talking About a Revolution

TALK ABOUT SWEATING IT.

Sports drink sales have taken the plunge this year. The latest? Convenience store sports drink sales dropped by almost 25 percent in the four weeks before and after Memorial Day, and by about 16 percent last in the last 12 months. With the category so thoroughly dominated by one product, there can only be one conclusion: Brand Gatorade is hemorrhaging.

PepsiCo CEO Indra Nooyi admitted as much during her last earnings call, when she asked for patience as the line shrinks down to its core user base – the same core base that PepsiCo tried to re-energize for with the “G” marketing campaign, which aims for the soul of the athlete, more than the casual user.

It’s going to be a hard truth for both retailers and investors: Gatorade, when it was purchased by Pepsi, was easily the shrewdest beverage brand acquisition of the last 25 years. And its popularity is such that it will likely remain an important part of the beverage firmament. A cooler without Gatorade would be like a cooler without Sprite. But the brand is starting to show signs of age.

That’s not to say that Gatorade won’t continue to dominate the sports drink category; it’s just that it’ll be dominating a much smaller one, as drinker preferences evolve so that they demand a variety of functional effects from their beverages. Worse yet for the brand, the spectrum of products aimed for athletes continues to diversify as well. As we’ve reported already, “Sports Drinks” are growing to encompass protein-based products, natural products like coconut water, even specialized performance hybrids that deal with mental focus or energy in addition to hydration.

Certainly, it took an unfortunate confluence of events to make Gatorade’s stumble worse than it might ordinarily have been: a rainy early summer, an underwater economy, and a ham-handed rollout of what may yet become an effective rebranding campaign have all probably exacerbated the situation. Small factors played in, as well – Gatorade’s new Tiger brand struggled mightily – down 57 percent – while namesake Tiger Woods didn’t exactly elevate his game for the brand, missing the cut at the British Open. (Note: here’s some unsolicited advice for Joint Juice: sign Tom Watson as your spokesman. NOW.)

But again, overemphasizing the collection of internal and external factors just listed above is to discount the more fundamental change that has taken place – and that change is that Gatorade is not the only functional beverage out there anymore, and its share will erode through category theft. Just as energy drinks have taken share from CSDs, they have also started to encroach on Gatorade’s turf – the open secret in professional baseball is that in the absence of “greenies” and other performance-enhancing stimulants, players have turned to Monster and Red Bull. At the non-performance end of the spectrum, bottled and enhanced waters are capturing a great deal of the cool cachet that having a bottle of Gatorade once signified for consumers – particularly women, who have had a stronger hand in driving the growth of vitaminwater than men.

So, is the day on the horizon when Gatorade’s market share will be whittled down until it becomes just one of many functional beverages that serve a specific purpose, in this case, sports hydration? Likely the future is not that bleak; even as its broad functional mandate erodes, Gatorade remains an all-purpose refreshment beverage for many people. True, somewhere down the line, there will be some decay in that respect, as fewer people who pick it up for the function keep drinking it for the taste. But for several generations, the product has left a strong imprint, and it should maintain its strength among dedicated users. Additionally, the major innovation in the line in recent years, the development of G2, should help the company retain users who are looking for products that are lower calorie or are more receptive to the idea of products that are “less sweet.”

Still, it’s an amazing thing to see cultural change wash over a product line, and to see its sales drop drastically as a result. It makes one wonder how much of Gatorade’s precipitous fall was anticipated, and how much of it was the result of mishandling. Already, at PepsiCo, there’s been something of a changing of the guard; CMO Dave Burwick announced he was leaving as I started writing this column, and Gatorade itself acquired a new head of marketing late last year. But sometimes things get stolen when it isn’t the guard’s fault at all. Sometimes, what they’re guarding just isn’t worth as much as it used to be. And those are the times that are revolutionary, indeed.