Business Marketing Proposal for Gatorade\'s Expansion Into

Business Marketing Proposal for Gatorade's Expansion Into International Markets

Please see the attachment, which contains my analysis and marketing recommendations on Gatorade's Strategy for International Markets. The analysis and recommendations have been developed based on recent market trends. I am strongly convinced that given Gatorade's undisputed success in the U.S. sports drink market; there is a strong case to invest in expanding its consumer franchise in international markets. Such expansion will allow Gatorade to build on its already existing status as the world leader in sports drink, reduce dependence on the U.S. market and lead to strong revenue and profitability increases.

Introduction: Gatorade's sales, which was acquired by Quaker Oats in 1983, has grown from $100 million in 1984 to over $2 billion worldwide in 2001. The brand commands 85% share of the sports drink category in the U.S.,1 contributing 33% of total sales and growing at an annual double-digit rate, outpacing the ambling general foods industry. Realizing that 80% of its customers were in the U.S. And Canada, Gatorade turned its attention to potentially large and important global markets such as Latin America, Europe and China. 2 Gatorade was launched in Australia, Brazil, Singapore and Mexico in 1994; China, Indonesia, Columbia and the Philippines in 1995; and the Middle East and South Africa in 1996.3 However, given Quaker's relative lack of global resources, Gatorade faces many challenges in international markets.

Objective: The objective of this paper is to evaluate the opportunities and challenges for Gatorade in key international markets and to recommend marketing solutions.

Situation Analysis: A key factor in Gatorade's success has been the ongoing research conducted by the Gatorade Sports Science Institute (GSSI), where scientists work to ensure that nothing hydrates an athlete's body faster and better than Gatorade.4

This implies that Gatorade's target audience lies among the youth. Though the 'Baby Boomers' are ageing in the U.S., this trend is also accompanied by an emerging 'youth bulge' (refer Table 1). Therefore, Gatorade will continue to see further growth potential, especially since non-carbonated drinks still account for only about 14 gallons of single-serves, as compared to 55 gallons per year for carbonated beverages. Year 2000 saw the $17.8 billion U.S. market for individually sold non-carbonated beverages grow by 13%, while the $60 billion carbonated soft drink market increase by only 4%.5

However, competition is increasing, with Americans becoming more health conscious leading to soda sales becoming flat, resulting in both Coke and Pepsi turning their attention to the higher margin, non-soda business (including All Sport and Powerade) and launching a number of brands in segments ranging from calcium-fortified waters to vitamin-enriched drinks.6 The increased focus of the cola majors on non-sodas is taking place, not just in the domestic market, but globally as well. October 2001 will see Coke launch Powerade in Europe, with plans to make the campaign its biggest marketing project in the region in six years, with investments ranging from $40 to $50 million 7 (including a high level sponsorship plan such as Powerade being the Official Sports Drink of the Italian team for the 2002 FIFA World Cup) in order to enter the fast growing European sports drink market.8

The moves by the cola majors are not surprising considering that both companies have been focusing on growing international markets, given flat soda sales in mature markets such as the U.S., and the fact that consumers worldwide are growing more health conscious (by the end of 2000, China had 30 national mass sports associations; 620,000 stadiums; and over 100,000 part time sports instructors with the number of citizens taking part in sports increasing by 2% annually9). In other parts of the world as well, the non-carbonated segment is poised for growth:

value sales of functional drinks (including energy and sports drinks) are projected to grow by 35% in real terms between 2001-06 in Europe as compared to 10% for carbonated beverages10; the beverages market in China has altered dramatically in recent years with non-carbonated drinks becoming increasingly popular (the total beverages market has grown by 153% between 1995-2000).11

To conclude the analysis, while Gatorade might dominate the U.S. market, which still has good growth potential, it must visibly consolidate its position in key worldwide markets, given the tremendous potential (see Table 2 & 3) and the increased activity of major competitors like Coke and Pepsi, both domestically and globally. It must also be noted that Gatorade faces formidable competition globally from the cola majors (see Table 4), in terms of depth and width of distribution, established brand presence and marketing muscle. If Gatorade does not move fast, the concern is that competition may pre-empt Gatorade's eminently successful marketing formula in other markets. Take, for instance, Powerade's strategy in Europe. 7

Problem Analysis: There are several challenges to be faced should Quaker Oats decide to invest heavily in expanding Brand Gatorade's international franchise and market share. The first is the challenge of building profitable businesses in the more volatile world of less developed economies, which has in the past, caused problems. It has been seen that Gatorade's Asian business, for example, totaling to $20 million in sales in 1998, did not progress because the company did not understand local business cultures and built too complex an infrastructure. 12 The second is the need for strong distribution and brand presence and the third challenge is in extending the brand equity that has been so successfully built in the U.S., and Latin America to an extent, to other parts of the world. Again, the learning curve on Gatorade has shown the risks of projecting an all-American image, which didn't go down well among consumers in Europe.