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The Gatorade Challenge

As rivals step up, PepsiCo moves to ensure sports-drink leadership.
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With the world's attention focused on the Olympic games and its sweaty, thirsty athletes, this is prime time for sports drinks.

It is also the moment that PepsiCo is increasing its focus on the beverage that defined the category, Gatorade. The beverage and snack giant has reshuffled the leadership the $5 billion brand, its fourth largest, as it steps up an effort to integrate its portfolio of beverages in North America.

Gatorade still controls about 80 percent of the "active thirst" market, but it has not been the sales juggernaut it once was.

Like an Olympic athlete who dominated every sport it entered, Gatorade has seen hundreds of competitors in bottled water, functional beverages, and energy drinks draw customers that otherwise might have bought Gatorade by default. Even Gatorade's own water sub-brand, Propel, took share that otherwise might have gone to the sports drink.

"For basically three decades, sports drinks were growing at a pace that no one knew how large the category truly was," said P.J. Sinopoli, a PepsiCo spokeswoman. "It still does not appear to have maxed out by any stretch; however, growth has slowed due to proliferation in the broader, non-carb category."

Perhaps its most vexing rival has been VitaminWater, acquired for $4.1 billion from Glaceau in 2007 by archrival Coca-Cola. Hipsters have been buying VitaminWater by the case for its beauty and focus-oriented benefit. Increasingly, the brand began targeting athletes with celebrity endorsements by the likes of LeBron James and Kobe Bryant alongside 50 Cent and Kelly Clarkson. It didn't help that in 2007, Coca-Cola's PowerAde and private-label brands grabbed double-digit percentage gains.
 
So PepsiCo has just installed David Burwick as chief marketing officer for its North American beverage business, adding Gatorade to his oversight. Gatorade in June hired rising Nike marketing star Sarah Robb O'Hagan in a bid to stretch the marketing limits of the brand, and she now will report to Burwick. Gatorade's president, Todd Magazine, will leave the company, putting the unit directly under PepsiCo Americas Beverages' chief executive, Massimo D'Amore. Rich Beck, now executive vice president of PepsiCo Chicago, will become president, North America functional beverages, with profit and loss accountability for Gatorade.

"This is to manage our total portfolio of brands in a more holistic way and to better leverage the scale of our business," said David DeCecco, a PepsiCo spokesman.

Gatorade was developed at the University of Florida in 1965 to help the electrolyte-depleted players on the football team (the Gators, of course). PepsiCo acquired Gatorade when it bought Quaker Oats for $13.4 billion in 2000, after outbidding Coca-Cola.

Since Indra Nooyi became chief executive of PepsiCo in 2006, the company has been in a constant state of reorganization.

In October 2006 she split PepsiCo's worldwide business into two units, a North American unit and an international unit. Then in December 2007, she further split the company into three units, anchored by PepsiCo Americas Beverages, PepsiCo International, and PepsiCo Americas Foods. It put D'Amore in charge of beverages and John Compton in charge of foods.

This year, the company has been making a bigger advertising push for Gatorade, including a head-scratching spot during the Super Bowl that featured a dog drinking Gatorade from a bowl.

The changes appear to be working so far. For the four weeks ending July 13, Pepsi's sports-drink volume grew 9.8 percent.

The recent changes mark the cultural end of Gatorade, which had long held onto its Quaker Oats culture even after PepsiCo bought the brand.

It is "the continuation of the Pepsification of Gatorade," said an executive close to the company.


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