Deutsche Bank: enhanced water and isotonics blending

Deutsche Bank issued a report on the beverage industry last week, with conclusions that call for erasing the already-fading line between enhanced waters and sports drinks and that depict a grim outlook for new entrepreneurial brands.

The current top consumer need in beverage brands, the report said, is value. Absent low prices, brands can create sales by offering strong innovation or brand equity, but both can be difficult traits for new brands struggling with limited budgets and high supplier costs.

If the present throws a serious challenge at entrepreneurs, it also poses one for PepsiCo’s Gatorade. PepsiCo CEO Indra Nooyi recently said the brand would return its focus to its core users, serious athletes, but the Deutsche bank report suggests that may not help sales. In collecting its data, the report’s researchers treated enhanced water and isotonics as one category, pitting Gatorade and vitaminwater as direct competitors. Even users who are very serious about fitness, the report found, favor vitaminwater nearly as often as they favor Gatorade. Among users who exercised 3-4 times per week, 39 percent named Gatorade as their favorite isotonic compared to the 30 percent that chose vitaminwater. Gatorade performed better among consumers that reported they exercised daily – 42 percent compared to 22 percent – but Deutsche Bank’s research suggests those users could represent as little as 20 percent of the brand’s sales.

“It is not clear to us that further efforts to delineate and refine the message such that every single serious athlete is ‘owned’ by Gatorade will produce a very compelling economic return,” the report said.

In a third takeaway, the report issued a warning to the industry’s biggest marketers and bottlers: the industry should curtail price promotions. Consumers of all ages told researchers that they are more likely to buy bulk, take-home beverages when they’re on sale, the report said, leading to a consumer base that shifts from brand to brand as each goes on sale. The solution, the report said, is to shift to consistent pricing instead of regular bouts of promotional pricing designed to drive market share.