Iman Shumpert is eight minutes into his Fatmax test at Gatorade’s new Sports Science Institute in Bradenton, Fla., before the first sheer layer of sweat appears on his shoulders. The National Basketball Assn.’s 17th overall draft pick has traded a New York Knicks cap and Beats by Dr. Dre headphones for a mask of tubes that makes him look like something out of Alien. At predetermined intervals, attendants boost the speed and grade of the treadmill he’s running on while computers record his heart rate and oxygen levels. The Fatmax figures out when a body is burning fat (as opposed to carbohydrates) most efficiently. “Hold out as long as you can,” Gatorade scientist JohnEric Smith tells Shumpert. Maximum effort yields the best results. Smith cranks it up another notch. Shumpert picks up the pace. “Good,” Smith beams.
Shumpert is among a string of athletes that includes NBA All-Star Dwyane Wade who have come to the new Bradenton lab looking for insights into their bodies (Shumpert has suffered muscle cramps for years) while Gatorade tests a series of new products, such as energy chews, intended to boost athletic performance. The lab is located at IMG Academies boarding school, which was founded by the late New York private equity magnate Theodore J. (Ted) Forstmann. The lab primarily serves IMG’s student-athletes, nearly 1,000 high school kids from all over the world who pay as much as $60,000 a year to go to boarding school nine months a year, splitting each day 50/50 between classes and their sport. “It’s Hogwarts for athletes,” says Trevor Moawad, director of the IMG Performance Institute, a unit of the academy. And for Gatorade, it’s a skunkworks with a captive crew of guinea pigs. “Where else is a population like this?” Smith says after Shumpert concludes his test and downs a bottle of lemon-lime G Series Pro O2 Perform, an update on its original drink, which introduced electrolytes to the mass market.
More than 40 years after football players at the University of Florida first sipped what would soon become Gatorade, parent company PepsiCo (PEP) is looking to move the brand beyond beverages. In the same way PepsiCo rules the potato chip aisle, its Gatorade division has embarked on an audacious plan to cover the sports nutrition world with offerings to challenge a full spectrum of energy and after-workout “recovery” products, including energy bars, gels, protein shakes, and pretty much anything else athletes put into their bodies. “One beverage can’t serve all your needs as an elite athlete,” says the brand’s chief, Sarah Robb O’Hagan. (Her official title is Gatorade president, North America, and global chief marketing officer, sports nutrition, for PepsiCo.) Gatorade’s goal is to go from a big fish in a $7 billion U.S. sports-drink industry to an even bigger fish in a $20 billion sports nutrition market.
The plan so far is in its infancy, visible to the outside world mostly in the repackaging of its three core product lines—the G Series, G Series Fit, and G Series Pro. Each now comprises pre-, during-, and post-workout products labeled 01 Prime, 02 Perform, and 03 Recover. They require a flow chart to keep straight, and some industry observers view the metamorphosis warily as a work-in-progress. “I think it’s a very confusing brand,” says Tim Hoyle, director of research for PepsiCo shareholder Haverford, a wealth management firm, and an avid cyclist.
Gatorade has its work cut out for it. It will need to persuade everyone from high school jocks to weekend tennis warriors that they should trade bananas for packaged carbohydrate chews, and peanut butter sandwiches for processed protein bites. And it must overhaul its distribution system. Instead of just stacking beverages high and selling them cheaply in grocery and convenience stores, the new strategy requires the company to rethink everything from advertising to in-store displays. Gatorade now is selling to GNC vitamin shops, Dick’s Sporting Goods (DKS), Whole Foods Market (WFM), and specialty sports stores. “It’s about being where athletes shop and sweat,” says Andrea Fairchild, vice-president of brand marketing.
One thing Gatorade doesn’t lack is motivation. After several decades of steady growth, Gatorade had sluggish sales in recent years and a full-scale collapse during the U.S. recession. Determined to walk away from discount-driven sales—or “rented volume,” as Robb O’Hagan calls it—the company decided in 2008 to turn away from couch potatoes who chugged Gatorade to wash down a cheeseburger or cure a hangover. Analysts gasped during a 2009 earnings call when PepsiCo Chief Executive Officer Indra K. Nooyi said such consumers—who had by then reverted to cheaper beverages like soft drinks and tap water—“didn’t really have a right to exist in the Gatorade world.” Harsh, perhaps, but it was Nooyi’s way of saying PepsiCo wasn’t selling out anymore.
On a recent afternoon at Gatorade’s headquarters in downtown Chicago, Robb O’Hagan laced up her roadworn Nike Air Pegasus running shoes to discuss the Gatorade transformation over a light jog through the city. PepsiCo recruited Robb O’Hagan from Nike (NKE) in June 2008 as Gatorade sales were grinding to a halt. The 39-year-old executive is a test market of one. In August, Robb O’Hagan and her husband, a stay-at-home dad and part-time Web producer, completed the Chicago Triathlon. The Olympic distance race—1.5 kilometer swim, 40 kilometer bike ride, and a 10 kilometer run—was her annual athletic goal, part of a program she instituted for Gatorade employees to make sure they were walking the talk. “You can pick whatever your goal is,” she says. “It might be that you want to lose a few pounds. One guy wanted to bench-press 300 pounds.”
One of Robb O’Hagan’s first moves was to revive the idea of truncating Gatorade’s logo to a simple “G.” Unveiled in a mysterious Super Bowl ad in 2009 that never mentioned the word “Gatorade,” the G intrigued some consumers and baffled others. The intent, says Robb O’Hagan, was to appeal to a new generation and to develop a logo that can appear on a wider range of goods.
She also noticed the brand really wasn’t marketing to athletes. “The huge aha! for me was, ‘We’re an athletic performance brand, we’re selling in convenience stores, grocery stores, Wal-Mart (WMT), but we don’t even show up in a sporting goods store, in a cycling store, in a place where an athlete actually goes to equip themselves to play sports,’ ” she says. Robb O’Hagan has since brought Gatorade back to athletes and to the science that gave the brand its credibility.
First developed by researchers at the University of Florida in 1965, Gatorade took off quickly with college and professional athletes because it has a formula proven on the playing field. By 1983 it had became the National Football League’s official sports drink. In 2001, PepsiCo bought the $2 billion-a-year brand, and the soft-drink and snack giant spent the better part of the decade pushing Gatorade through its massive distribution system. PepsiCo introduced hundreds of flavors and package deviations, including a breakfast version, Gatorade A.M., pitched by Indianapolis Colts quarterback Peyton Manning. The strategy made sense at the time, Robb O’Hagan allows, but it crashed along with the economy in 2008. In 2007 the sports-drink category had mushroomed to $8 billion a year in the U.S., and Gatorade controlled 80 percent, according to industry newsletter Beverage Digest. Within three years, the sports-drink market had declined by $1 billion, and Gatorade’s market share had eroded to 74.8 percent. Meanwhile, serious athletes were turning away from sports drinks to a raft of emerging products, including Jelly Belly Sport Beans, Bonk Breaker Energy Bars, and the Honey Stinger energy waffles endorsed by Tour de France champion Lance Armstrong. They bought Carbo-Pro powders in large tubs. Gatorade had mostly conceded these markets. “It’s our role to make anything to drive an athlete’s performance that goes inside their body,” Robb O’Hagan says, drawing a comparison to her former employer’s strategy. “Nike’s all about what’s outside your body. We’re about what’s inside.”
Gatorade’s transition from beverage giant to sports nutrition company is taking shape on several fronts, not the least of which is social media. In a midsize conference room in Chicago known as “mission control,” four to six employees with laptops watch a bank of six screens like NASA rocket engineers. On the screens, they track the Internet’s “mood” toward Gatorade, thanks to software that collects, categorizes, and interprets a cross section of online conversations. Then, on their laptops, they follow up on individual comments and complaints. For example, Gatorade investigated one about caps on some drinks being hard to open and discovered that the bottles in question had overheated during shipping. “It’s the world’s largest unaided focus group,” says 31-year-old Randall Brown, global director of digital strategy for Gatorade.
To deepen and update the information, Gatorade recently hired the man who invented the Fatmax test. Asker Jeukendrup was a professor of exercise metabolism and director of the human performance lab at the University of Birmingham in England. He worked with Armstrong during the Tour de France winner’s comeback from cancer. Jeukendrup’s job is to take a maze of often conflicting and highly specialized nutrition science and boil it down for mass consumption. “A lot of the science actually goes unused; it’s done to maintain academia,” he says.
Gatorade plans to use his work as the basis of new products, too, although this won’t be easy. People absorb proteins, carbohydrates, and electrolytes at different rates, and those rates can change with the weather, says Lawrence Armstrong, professor of environmental and exercise physiology at the University of Connecticut’s human performance laboratory. Research, for example, says protein helps repair muscles after exercise. But simply chocking a bar full of protein won’t work. The body can handle only so much at a time. And even when the optimal level of a carbohydrate is determined, making large amounts of the supplement palatable in a drink requires further expertise. “There are many, many factors that influence performance, including psychology, including sleep, including environmental conditions,’’ Armstrong says.
NBA star Wade started taking his nutrition more seriously after leading the Miami Heat to the 2006 championship title. Wade’s leg muscles began to seize during the deciding sixth game against the Dallas Mavericks. “The last three to five minutes of the game, I was just cramping up bad and trying to tough it out,’’ he says by telephone from Australia, where he is helping launch G Series. Gatorade is working with Wade to customize a nutrition program for him.
Naturally, Gatorade can’t make individualized products for everyone; the company has to find common denominators. Its solution so far has been the G Series. The core line is targeted to “performance” athletes—competitive high school swimmers to adult basketball league players—who make up nearly a quarter of the U.S. population, Robb O’Hagan says. The series includes a 4-ounce carbohydrate-loaded “pre-game fuel” drink pouch designed to be easily torn open and squeezed into your mouth. The flavored recovery water in the series is packed with protein and carbohydrates.
G Series Fit moves down the ladder a bit and is intended for the roughly 55 million Americans aged 18 to 34 who exercise three times or more per week. These people work out to stay healthy, without necessarily competing. The supplements in Fit are scaled back to match less intense workouts. This line is where Gatorade’s departure from beverages is most pronounced so far: The main offering is a fruit-and-nut bar segmented into bite-size, 50-calorie squares. A fruit smoothie provides an after-workout dose of protein to help the athlete recover sooner.
G Series Pro, meanwhile, is a consumer version of products Gatorade had already been producing for professional athletes. A recovery bar contains whey and casein from milk protein for muscle growth. Vitamins and minerals in the bar boost muscle metabolism, Gatorade says, while carbohydrates help store energy in muscles and the liver in the form of glycogen sugar. Gatorade soon will roll out Pro chews—essentially Gummi Bears for endurance athletes—to compete with Gu Chomps and Clif Bloks that are a staple on long-distance courses. The company also sells two all-natural versions of its new drinks that use noncaloric sweeteners. Gatorade drinkers accustomed to buying 32-oz. bottles for 99¢ may experience sticker shock when it comes to the newest products. PepsiCo charges for its innovation. A 12-oz. bottle of the Pro pre-workout carbohydrate drink sells for $2.99.
This product lineup demands an equally dramatic shift in how and where PepsiCo distributes Gatorade in stores. Before Gatorade’s transformation, sales were split fairly evenly among grocery chains, club stores such as Wal-Mart, and convenience stores. “We are setting a different bar for how we are looking at retail,” says brand marketing Vice-President Fairchild, whom Robb O’Hagan recruited from Nike last year.
Gatorade has taken its Pro series into cycling and running specialty stores that cater to endurance athletes as well as health supplement stores such as GNC. “People come in and buy nutrition from me every day and spend hundreds of dollars,” says Julian Angus, 40, owner of Tempo Cyclery in Sarasota, Fla., who remembers a time last decade when only a few companies made products for elite athletes. Margins rival those of clothing and accessories, he says. Still, Angus was skeptical when Gatorade first pitched him on the products and started sending displays. He worried that customers, not realizing these were new offerings, would think they were being charged boutique prices for the same old drinks they could buy at the supermarket.
As far as they have come, Fairchild and Robb O’Hagan say a fully evolved distribution model is still years away. By some estimates, Gatorade controls about a fifth of the sports nutrition category. “It’s a pretty daunting task to create this across all retail channels and across all of our business,” says Fairchild. “We’re not looking to change the entire marketplace overnight.”