Gatorade Turns 50: What the Sports Drink Must Do to Keep Its Edge

NEW YORK (The Street) -- Unlike the professional athletes with which it's most identified, Gatorade at age 50 is still going strong and showing no signs of retiring.

The sports drink that PepsiCo (PEP) acquired as part of its $13.4 billion acquisition of Quaker Oats in 2000 still holds a dominant roughly 75% share of the sports drink market. Last year, Gatorade sales grew 5.4% according to Pepsi, while the total U.S. isotonic drinks market, which includes drinks that "rehydrate people" such as Gatorade, only increased 4.1% for the 52-weeks ended April 25, according to Nielsen. That means Gatorade is outperforming the market as a whole.  

One of the biggest of those memories is the famous 1992 commercial of NBA legend Michael Jordan sipping an ice-cold Gatorade and playing hoops with kids in many ways created an entire generation of Gatorade devotees that wanted to be like Mike. To commemorate its 50th birthday, the brand in April released a technicolor "Be Like Mike" throwback 60-second TV spot.  

Whether it's a dose of nostalgia, aggressive sports star marketing, or the actual taste and benefits of the electrolyte-filled product, or all three, it's obvious that Gatorade still dominates the sports drink industry. Doing so is no small achievement as retailer shelves have become cluttered with the likes of caffeinated energy drinks and protein shakes, which also allegedly enhance athletic performance.

Gatorade's biggest rival is Powerade, which has most of the rest of the sports drink market and saw its sales rise 0.5% last year, according to John Sicher, editor of Beverage Digest, which tracks industry trends and data.

"Gatorade is a tough brand to compete with," Sicher said.

But to maintain and even expand that enviable market share even further in the quarters and year ahead, Gatorade will need more than the nostalgia factor in an increasingly competitive sports drinks market. In effect, what defines a sports drink is rapidly evolving. Is it a highly-caffeinated Red Bull that could power in-game performance by an athlete? Or perhaps a protein-packed Musclemilk that an athlete reaches for after a grueling Crossfit session?

TheStreet takes a look at two ways Gatorade can maintain its edge in the market, primarily through package and product innovation. And in the process, continue to be a solid contributor to PepsiCo's bottom line during a time where sales of carbonated sodas continue to be under pressure industry-wide.

1. Keep innovating with its packaging.

In the business of consumer products, the product itself is usually the star. However, the packaging is sometimes equally important -- it's what tempts a consumer walking down a crowded aisle and helps reinforce the stuff inside the bottle or wrapper.

For Gatorade, new innovation in packaging begins with the athlete in mind. "Our mission is to fuel athletic performance," reminds O'Brien. This year, Gatorade launched a slimmer plastic bottle after conducting research with athletes.

"We heard loud and clear from athletes that when they grab a Gatorade from the cooler, or in a big ice bucket, and go to drink it, the label was kind of loose and they got a lot of water down their shirt," O'Brien said. So, the slimmed-down bottle with its tighter fitting wrapper, says O'Brien, is "more chuggable", which aids in getting the product ingested even faster. As for Gatorade energy chews, they received packaging that is easier to tear off while on an endurance run.

The brand is also shifting its gaze towards bottle customization. An example: introducing what is referred to as a "necker", a tag placed at the top of a bottle upon which a person can write their name. Pretty helpful for a 12-year old Little Leaguer trying to find their Gatorade bottle on a crowded wooden bench in the dugout.

Gatorade's recent efforts on packaging are consistent with broader trends playing out in the consumer products industry.

"Two trends in packaging we are noticing is that packaging is having its form tailored to use occasions, for example a beer company that has created a package that doubles as an ice cooler to bring to soccer matches -- this trend helps with product differentiation on the shelf," said Mike Black, vice president marketing, and innovation at Nielsen. Another trend, notes Black, is that brands are creating different packaging for different retail channels, such as smaller package sizes for convenience stores where people want to grab a product and go back to their cars.

2. Push the brand beyond just adding new drink flavors.

Compared to when Gatorade was created by a team of research at the University of Florida some 50 years ago, there's been an explosion in the number of products pitching themselves as beneficial to athletic performance. That much is evident with any weekend trip to a local GNC (GNC) or Vitamin Shoppe (VSI), where rows of sugary protein bars and fruit-flavored pre-workout powders line the shelves. Even mass retailers Wal-Mart (WMT) and Target (TGT) have increased the amount of shelf space devoted to products such as creatine powder and energy bars.

Gatorade will have to find new ways to leverage its connection with consumers and release new products that essentially cut though the industry clutter.

One new product could be the introduction of a low-calorie caffeinated beverage that would pack more of a nutrient punch than PepsiCo's successful Mountain Dew Kickstart energy drink. "Caffeine is not in any of our products right now, but I would never say never -- athletes use caffeine like crazy, especially endurance athletes," says O'Brien. He added, "I just think we need to better understand caffeine usage amongst athletes, and governing bodies with the NCAA, understand their approaches to caffeine and collectively figure out if this is the right way to go."

There is life outside of liquid nourishment, however, and that could send the folks at Gatorade off to try to move beyond a protein bar or energy chew. Perhaps Gatorade Greek yogurt? After all, Carolina Panthers QB Cam Newton is the spokesman for Dannon Oikos Greek yogurt, as it apparently powers him through a grueling day of football workouts and enhances his mental focus. Something more realistic from Gatorade, at least for the time being, could be a new kind of chewable product. "We are looking at things gum-like, and things to put in your mouth that do help from an athletic standpoint -- we're not there yet," said O'Brien, who admits to being a fan of the late 1970s and early 1980s product GatorGum.

Unfortunately for fans of the cult product, GatorGum is unlikely to reappear anytime soon. "We've talked about GatorGum, the thing is that right now GatorGum as it is doesn't serve an athletic purpose -- I don't want to put it out there for nostalgia's sake," said O'Brien.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

More from Investing

A BJ's Wholesale IPO Is Logical Next Step

A BJ's Wholesale IPO Is Logical Next Step

Tesla Investor Pushing for More Board Changes

Tesla Investor Pushing for More Board Changes

What You Need to Know About Facebook and Europe's New Privacy Rules

What You Need to Know About Facebook and Europe's New Privacy Rules

8 Bold Moves General Motors Could Make to Rev Up Its Battered Stock Price

8 Bold Moves General Motors Could Make to Rev Up Its Battered Stock Price

Is Your Investment Portfolio Prepared for Trade Wars, Inflation and More Trump?

Is Your Investment Portfolio Prepared for Trade Wars, Inflation and More Trump?