Winning campaigns: Sports marketing in the USA

By John G. Rodwan, Jr.

Reprinted from the June 2005 issue of Soft Drinks International (softdrinksinternational.com) - Click here for a PDF version of this article

Sports fans are loyal to their favorite teams and athletes, and beverage companies hope to tap into that loyalty and extend it to their brands through sports marketing. The variety of sport-related marketing activities allows for initiatives at virtually any budgetary level.

In the United States, beverages geared specifically towards use in connection with physical activity, such as sports beverages, as well as those more suited to consumption by spectators, such as carbonated soft drinks (CSDs), are marketed through sports imagery in advertising. Sponsorships of leagues, teams, events and individual athletes are also components of sports marketing programs. To some extent, a brand name emblazoned across the hood of a racing car, on the canvas of a boxing ring, or on the wall aside a field, court or rink is little different from traditional outdoor advertising: it simply gets name and associated graphic before the public. However, sports-marketing campaigns also form intangible associations between brands and the world of sports.

Sports beverages are the most obvious candidate for a sports marketing campaign, and the most likely to run one focusing on products' performance-enhancing properties. For example, Gatorade's entire brand identity is predicated on its connections with sports and the beverage's purported aid to active individuals. And the brand's rapid growth over the years may be the best evidence of the possibilities of success from a well executed sport-based effort. Gatorade has grown from having wholesale dollar sales of approximately $715 million in 1993 to more than $2.2 billion 10 years later. In 2003, its volume, which exceeded 470 million cases, accounted for more than 80% of the beverage category that it pioneered, and it continues to grow rapidly.

CSDs are not likely to highlight any functional properties in advertising campaigns, but are still frequently subjects of aggressive sports marketing drives. CSD sports marketing is not dramatically different from conventional CSD marketing: it seeks to reach its audience through prominent advertising that uses celebrities. Whereas sports beverages may use known and unknown athletes to intimate isotonics' benefits to active consumers, CSDs are likely to engage highly recognizable athletes, much as they use singers or other celebrities of the moment.

Can reach out and resonate

Whatever the difference in strategies used, the aims remain the same: to reach a large audience through marketing connected to high-profile events or broadcasts, to reach specific consumers or regional markets through cable television broadcasts or certain sorts of sponsorships, to achieve and protect sales opportunities, to create brand identities and to increase visibility in general. The prominence of sports in American culture means a well designed sport marketing endeavor can reach, and resonate with, a large audience.

Yet there's more to sports marketing than airing television ads with athlete endorsers. Indeed, the high price of air time is one reason marketers sought alternative means of communicating with consumers. Major beverage companies remain committed to advertising during high profile sporting events like the Super Bowl, but sponsorships can complement costly television advertising or function as a sort of alternative to it.

While television ads are aimed at viewers at home (or wherever they happen to tune in), sponsorship activities often try to reach sports spectators where the game is played - both in terms of communication and actual libation. Sponsorships of particular teams, leagues or events may not only involve space for advertising; they may also involve pouring rights that exclude competitors' products from being promoted or served.

Such sponsorships can become features of point-of-sale initiatives and regional marketing activities. For example, in addition to being the official sponsor of a particular league, companies may become sponsors of individual teams, which may allow them to put team logos on packages. Such activities can also serve as the foundation for local-market endeavors that may include ticket giveaways or other prizes. By such means, companies gain not only associations with particular sports but also a sort of home-field advantage by connecting with "my" team.

There's a sort of hierarchy of sponsorships. While being the "official" or "exclusive" sponsors may be the most prestigious (and expensive) route to take, it is not the only way to reach sports fans via sponsorships. Being a "title" sponsor, as the very name indicates, means the sponsor's corporate or brand name becomes part of an event's moniker (as in the Budweiser Irish Derby). All the variations can be observed at play with both the most popular sports as well as more specialized ones, as well as with individual athletes.

A recent trend in sports marketing is the "presenting" sponsorship. "While many marketers have been involved in one-time sponsorships such as college-football bowl games, or have purchased stadium- or arena-naming rights, presenting sponsorships have offered a unique twist on an old game: more for less," Advertising Age reports. For a fraction of the cost of a 30-second Super Bowl ad, presenting sponsors can have their logo or brand name planted on scoreboards and signs throughout arenas and on ticket stubs, programs and press notes. Deals may also include mentions in teams TV, radio, print and outdoor advertising. Presenting sponsorships can also include tickets, which sponsors may give away to clients or consumers or to charity groups.

Challenges to consider

Scandals involving sports, teams or players can cast a dark shadow over even the best planned sports-marketing program. Without question, endorsement deals and sponsorships leave companies vulnerable to embarrassment. As Steven Miller, a former director of sports marketing for Nike, once observed to a reporter, "Real people get hurt, real people retire, real people don't perform, they lie and cheat, they cheat on their wives, all kinds of things." Sponsors can become associated with sports tainted with doping scandals (baseball, Olympic track and field, the Tour de France, etc.), athletes taking swings at audience members (basketball) or sports with a dicey reputation for a variety of reasons (boxing).

Although scandals have not dissuaded beverage companies from associating with the sporting world, they have affected advertisers' and sponsors' approaches. One response has been to add strict morals clauses to contracts with athletes. Another has been to opt for presenting sponsorships rather than endorsements of individual athletes.

Opportunities presented

A well conceived endorsement deal with an athlete can help build a brand's identity through association with a celebrated, attractive personality with a proven track record who can communicate and embody a brand's values. Such deals can involve long-term agreements with high-level celebrities but can also be effective with less prominent individuals in suitably tailored and targeted efforts. In addition to reaching a large audience through advertising and developing a desired associations with celebrity athletes, sports marketing strategies can also be used in conjunction with other sorts of initiatives. Sports marketing may be a component of efforts to target particular ethnic groups. These generally focus on specific markets, cable networks (such as Spanish-language Telemundo) or particular sporting events.

The flexibility of sports marketing allows big and small marketers to participate in America's various popular pastimes, whether through multi-year endorsement deals and record-high ad spending or through more modest sponsorships or campaigns using regional or local media. Sports marketing can also be a means to use a familiar brand name in conjunction with others brands in a company's portfolio, as CSD marketers have done to promote bottled water and sports drinks together. Also, sports facilities offer large venues holding captive audiences through official sponsorships and exclusive pouring rights arrangements.

Another consideration concerning television advertising, which has implications for sports marketing, is the increasing popularity of digital video recorders (DVRs) like TiVo that allow viewers to record programs and then to skip the commercials when they watch the shows. As the practice grows more common, network television could face a crisis, since advertisers are not going to want to pay for ads no one watches. Television watchers in the U.S. currently use approximately 6.5 million DVRs and that number could increase tenfold over the next five years, according to a report in the Los Angeles Times. Already, at least 70% of DVR users use them in order to avoid watching commercials.

Already, sports programming is seen as a sensible investment for advertisers, and will remain so, since fans prefer to watch games and events live, not later on, when the outcome might be known. Ads on ring posts or alongside rings, fields or courts, are visible during the action and not just during the commercial break. While product placement in television shows and movies is a route marketers can take to reach commercial avoiders, negative reviews or waning viewer interest in particular programs can lessen the effectiveness of such methods. However, sports broadcasts are proven ratings winners, and such programming, as well as other sporting events, can be components of effective marketing efforts for the beverage industry.

John G. Rodwan, Jr., is editorial director of New York-based Beverage Marketing Corporation and author of the recently published report Sports Marketing and the Beverage Industry. Contact Charlene Harvey (formerly Salito), Beverage Marketing Corporation, Tel: 212-688-7640 ext. 1962.

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Carbonated Soft Drinks:
Seeking Growth

By John Rodwan, Jr.

Reprinted from the May 2005 issue of National Petroleum News.

Carbonated soft drinks have struggled to match the intensifying competition from other refreshment beverage categories, but they remain by far the largest commercial beverage category in the United States and a major presence in convenience/gas sites.

CSD volume increased by a mere 0.7 percent in the United States in 2004, an increase of about 72.5 million cases over 2003, according to data from Beverage Marketing Corporation. Amid sluggish overall volume growth, diet and private label soft drinks achieved solid performances.

Although industry volume topped 10 billion cases for the fifth straight year, per capita consumption fell for the sixth year in a row after several decades of unabated growth. Total volume surpassed 10.2 billion cases (15.4 billion gallons). The share of volume moving through c-stores has steadily increased, from roughly 11 percent five years ago to approximately 12 percent.

Per capita consumption dipped to 53.7 gallons in 2004 from 53.8 gallons in 2003, 54.2 gallons in 2002, 54.3 gallons in 2001, 54.5 gallons in 2000 and 54.8 gallons in 1999.

Diet soft drinks drove most of the category’s growth as consumers increasingly sought out healthier beverages. Diet CSD volume increased by 4.6 percent in 2004 to approach 4.6 billion gallons, which represented nearly 30 percent of the total market.

Coca-Cola’s volume declined by 1.0 percent. Its share decreased from 44.0 percent in 2003 to 43.3 percent in 2004. Although regular Coca-Cola dipped by 3.2 percent, Diet Coke and Diet Sprite both increased by 5 percent. Line extensions such as Coke C2 and Diet Coke with Lime added volume. Coca-Cola held its firm lead as the most popular CSD brand.

Pepsi-Cola Company’s CSD volume grew by 0.4 percent for the year. The company’s major diet brands enjoyed strong growth. Diet Mountain Dew, for instance, enlarged by 15.3 percent in 2003. Diet Pepsi also outperformed the overall CSD market in 2004, growing by 6.7 percent. New products introduced in 2004 – such as Pepsi Edge and some seasonal offerings like Holiday Spice – added some volume. However, other recently introduced products, such as Mountain Dew Code Red and Pepsi Twist, which boosted volume in their year of introduction, did not sustain growth in 2003 or 2004.

Of the branded soft drink companies, Dr Pepper/Seven Up Inc. (DPSU), the third largest soft drink company, saw volume increase the most, with a 2.4 percent advance. The owner of brands such as Dr Pepper, 7UP, Royal Crown and A&W increased market share for the first time in several years. Diet Dr Pepper surpassed 7UP in size to become a top-10 brand.

Cott Corporation, the leader in private label soft drinks, benefited from increased presence in growing distribution channels, such as mass merchandisers and club stores, and experienced a substantial 17.5 percent volume increase.

Although CSDs face competition from other types of beverages, CSD volume remained more than twice the size of the No. 2 category – fast-growing bottled water.

John Rodwan, Jr., is editorial director of New York-based research and consulting firm Beverage Marketing Corporation.

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Bottled Water 2004:
U.S. and International Statistics and Developments

By John G. Rodwan, Jr.

Reprinted from the April/May 2005 issue of Bottled Water Reporter, a publication of the International Bottled Water Association (www.bottledwater.org)

Bottled water emerged as the second largest commercial beverage category by volume in the United States in 2003, and, despite its significant stature, it continued to grow at a rapid pace in 2004. The category is growing even more forcefully on a global scale. In recent years, U.S. volume has been increasing more rapidly than dollar sales, but on both fronts, the industry’s performance is unparalleled.

The qualities spurring bottled water’s growth are clear. Many consumers recognize it to be healthy, safe and, in some instances, of superior purity to alternative sources of water. It’s a versatile product, suitable for consumption at any time of day and need not be kept cold (like soft drinks or juice) or warm (like coffee or tea). As far as ready-to-drink commercial beverages go, it’s relatively inexpensive. And as the difference between growth rates for volume and dollars indicate, it is becoming increasingly affordable. Various packaging types, ranging from bulk to single-serve, facilitate a variety of uses. Consumers’ growing interest in healthy, low-calorie products that confer benefits above and beyond refreshment also contributes to the quintessential hydrating beverage’s performance in recent years. As concern about obesity grows more widespread and intense, bottled water’s calorie-free contents appear that much more attractive to consumers.

Domestic non-sparkling water, especially the retail premium PET segment, is the star of the U.S. packaged water industry, consistently outperforming other segments. Indeed, it is primarily the single-serve PET segment that is driving overall category enlargement, and leading companies have forged new distribution arrangements in order to thrive in the growing PET segment while also attempting to revive other segments. Recently, imports and sparkling waters have returned to growth. Bulk and direct delivery volumes have not enjoyed the levels of expansion that characterize the PET water. Outside the United States, home and office delivery (HOD) is a vigorously growing segment.

The U.S. Numbers

In 2004, total U.S. category volume surpassed 6.8 billion gallons, an 8.6% advance over 2003’s volume level, according to the latest edition of Beverage Marketing’s comprehensive study of the market, Bottled Water in the U.S. That translates into 24.0 gallons per person, which means U.S. residents now drink more bottled water annually than any other beverage other than carbonated soft drinks (CSDs).

While CSDs still have volume and average intake levels more than twice as high as bottled water, the soft drink market has been stagnant lately, in no small part due to competition from bottled water. Per capita consumption of bottled water has been growing by at least one gallon annually, thereby more than doubling in a decade. Average intake of CSDs has dipped slightly for several consecutive years. The diet segment has been the strongest part of the CSD business. However, bottled water volume was almost 2.2 billion gallons larger than diet CSDs’ 4.6 billion gallons, and bottled water grew at a faster clip than diet CSDs’ 6.2% growth rate in 2004.

The U.S. bottled water market reached new highs not only in volume but also in wholesale dollar sales, which approached $9.2 billion in 2004. However, not only did sales growth slow compared with the previous year, which was not the case with volume, but sales also grew at a lower rate than volume for the second year in a row. This reflects the impact of price promotions, especially on PET multipacks, which are increasingly the focus of such promotions as well central to volume growth. Once primarily a tactic used on the West Coast, lowering prices to attract buyers is being seen with greater frequency throughout the United States.

Based on historical trends and the latest developments, Beverage Marketing expects bottled water volume to approach 7.4 billion gallons on growth of 8.1% in 2005. Wholesale dollar sales are expected to slow again but still advance at a solid 6.9% to reach $9.8 billion.

U.S. Category Developments

Domestic non-sparkling water is by far the largest component of the U.S. bottled water market. Its 6.4 billion gallons represented 94.2% of total volume in 2004. While the segment increased at a slightly slower rate than the overall market, it comprises diverse components with very different performances.

The most vital piece of the non-sparkling segment is the retail PET segment, which account for almost half of total bottled water volume in the U.S. in 2004 and is projected to exceed 50% in 2005. PET volume increased from 1.3 billion gallons in 2000 to almost 3.6 billion gallons in 2004, boosting its share of volume from 29.0% to 47.8%.

As consumers increasingly opt for convenient PET multipacks in large format retail channels instead of larger (1 to 2.5 gallon) sizes, retail bulk volume has slowed. Its share eroded from nearly one-quarter of category volume in 2000 to less than one-fifth by 2004, largely as a result of competition from PET.

HOD volume declined in 2003 and 2004 but losses are beginning to moderate. The segment accounted for 19.7% of bottled water volume in 2004.

Domestic sparkling water has revived, with market beating 9.3% volume growth in 2004. Imported water achieved its third consecutive year of double-digit volume growth, enlarging by 18.3%. Even with this strong showing, imports grew less quickly than the muscular PET segment, which swelled by 20.4%. Moreover, imports are not expected to grow nearly as fast in 2005 as they did in 2004, while retail PET is poised to extend its streak of double-digit annual volume growth.

The Top Players

Reflecting the vibrancy of the retail PET segment, the three leading companies in that area strengthened their position in the overall U.S. bottled water market in 2004 while companies primarily active in the HOD side of the business lost market share. Primarily this meant strong growth for industry leader Nestlé Waters of North America (NWNA) and for Pepsi-Cola’s Aquafina brand and Coca-Cola’s Dasani brand and a decline in volume for DS Waters Enterprises. The exception to this general trend was the decrease in volume recorded for the joint ventures between Coca-Cola and Danone Water of North America (DWNA), which involves DWNA’s retail PET brands (and some bulk water).

NWNA remained the largest bottled water company in the country, with more than $2.7 billion in wholesale dollar sales. The purveyor of major regional brands such as Poland Springs, Arrowhead and Zephyrhills accounted for approximately 30% of total bottled water sales in 2004. Although the United States-based subsidiary of the Swiss-based food and beverage giant Nestlé derives a significant amount of revenues from its HOD business, as well as its retail bulk water, NWNA increasingly has focused on its retail PET water business, the segment of that has seen the most growth in the past several years. While growth of Poland Springs was slower than the overall market in 2004, the brand remained the third largest selling brand in the United States, and several of the company’s other brands, such as Deer Park and Ozarka, achieved strong double-digit sales growth. NWNA, an early entrant into the U.S. bottled water market, has earned a reputation as an innovator in important areas such as PET packaging. It offers its various brands in an array of package types and sizes. NWNA is also a major player in the Canadian market, where it produces the Montclair brand and Aberfoyle Springs, which it now imports into the United States under the Nestlé Pure Life label.

In 2004, Pepsi-Cola’s Aquafina, which has reigned as the number-one brand for several years, became the U.S. bottled water business’s first billion-dollar brand. The brand’s share of overall wholesale dollars increased from 11.0% in 2003 to 11.3%.

Coca-Cola’s retail PET brand, Dasani, also saw its sale grow more forcefully than the overall market (albeit not as strongly as the PET segment itself) and its share of sales increase to 10.0%. The brand is poised to join Aquafina with sales greater than $1 billion in 2005 (although Aquafina is likely to remain the leading brand).

Although Dasani could be described as Coca-Cola’s standard-bearer in the bottled water business, the brand serves as part of a multifaceted strategy that entails distribution of Danone brands of various price levels.

In April 2002, Coca-Cola and DWNA formalized a deal under which Coca-Cola would manage all marketing execution, sales and distribution for Evian in the U.S. and Canada. Evian is now dispersed through a direct store delivery (DSD) distribution network. Groupe Danone retained responsibility for global product development and brand strategy efforts for Evian. Whereas Dasani represents Coca-Cola’s mid-priced offering, the imported Evian is a premium-priced brand. However, so far, Coca-Cola has not been able to revive the brand, which saw sales contract in 2004, although it sales declined at a much slower rate than in 2003.

In June 2002, the two companies established a partnership to produce, market and distribute most of Groupe Danone’s other U.S. bottled water brands. The CCDA Waters venture does not include Danone’s import brand, Volvic, Coca-Cola’s Dasani or Danone’s HOD bottled water business (which became part of DS Waters). The earlier agreement concerning Evian also remained intact and separate from the newer pact. Reportedly paying $128 million for a 51% interest in the venture, Coca-Cola gained five production facilities, a license for the Dannon and Sparkletts bottled water trademarks and ownership of “several value brands” in the AquaPenn roster. The deal provided the soft drink company with various lower-priced spring and purified waters. Although the overall volume of the brands Coca-Cola carries in connection with Danone decline in 2004, the Dannon brand revived after a couple of off years.

International Developments

In almost every major region of the world, bottled water has been one of the most dynamic beverage categories over the last five to ten years. While bottled water got its start primarily in Western Europe, where, for many consumers, it has long been part of their daily consumption ritual, it is now a truly global beverage, found even in some of the more remote corners of the globe. Global bottled water consumption is estimated to have approached 41.1 billion gallons mark in 2004, according to data from the latest edition of Beverage Marketing’s Global Bottled Water Report: A Worldview. The global rate of consumption rose by 6.5% in 2004. Per capita consumption was 6.4 gallons, up three-tenths of a gallon from 2003’s 6.1 gallons. Several Western European countries boast per capita consumption levels of well over 25 gallons, but much of the developing world, where the bulk of the world’s population lies, finds its per capita consumption figures still in the low single-digit range.

While the global per capita consumption figure may belie vast regional differences, bottled water’s global growth is indicative of a number of salient trends. First and foremost, bottled water has been able to make tremendous volume gains over the last decade by successfully tapping into some divergent consumer trends around the globe. Bottled water is in many respects the ideal category for beverage manufacturers across the globe. It is characterized by high gross margins, the ability to segment the market, the possibility of trading up and high growth. Yet, the bottled water market is still highly fragmented, leaving the window open for acquisition and investment opportunities.

In developed countries such as the U.S., Canada and Japan, bottled water has become the fastest growing and most dynamic major beverage category by tapping into a growing health and well-being consciousness on the part of consumers. This increased health awareness has helped position bottled water as an alternative not only to tap water, but, perhaps most important, as an alternative to carbonated soft drinks (CSDs) and juice drinks, in the multiple beverage marketplace. Many in the developed world see bottled water as not only a way of achieving hydration, but as a functional beverage as well.

At the same time, in the developing world, bottled water is increasingly positioned as a safe and relatively affordable alternative to the often-unsafe tap water found in many countries.

While much of the world’s bottled water market is still highly fragmented and controlled by local brands, consolidation is rapidly occurring, as four companies have come to dominate much of the market. Nestlé and Danone are the traditional leaders of the bottled water pack. Both companies centered their operations around the core markets of Western Europe and the United States. However, as water growth is increasingly coming from the developing world, Nestlé and Danone have taken their battle to the new competitive fields of Asia, Latin America and other areas. In fact, Danone has partially retreated from the U.S. market to focus on some of these other markets.

Complicating matters for the two European leaders is the recent entry of CSD stalwarts Coca-Cola and PepsiCo into the bottled water race. Beginning with their achievements in the United States, both companies are increasingly devoting resources and energy to developing their global bottled water businesses. PepsiCo and Coca-Cola have already claimed the top two spots in the U.S. bottled water market, and while they do not pose an immediate threat to Danone and Nestlé in Western Europe, they must both be considered serious threats in the less developed and often high-growth bottled water markets of Asia, Eastern Europe and South America.

Three other trends will also be evident in the next few years as companies increasingly use new product development to differentiate themselves in the eyes of the consumer in what has become an increasingly competitive marketplace. In Europe, the key question in the next five years will be whether or not consumers will trade down, as North Americans have, and embrace cheaper waters such as those sold by Coke and Pepsi in the United States. Another key trend to watch in the years to come will be the rise of nutrient-enriched waters. For example, both Danone and Nestlé are increasingly developing calcium-enhanced waters in Europe in the hopes that these products can become a new growth frontier for the industry. Finally, perhaps the most widespread trend in the industry of late has been the appearance and proliferation of flavored waters. Almost every company now has flavored versions of its leading brands, and particularly in the mature Western European market. In 2005, both Coca-Cola and Pepsi-Cola introduced new flavored version of their flagship retail PET brands.

While Europe may be the leading regional consumer of bottled water, on a country basis, North America boasts the two largest markets, the United States and Mexico, which together combined for 28.2% of the world market in 2004. Mexico accounted for 11.5% of the global volume at 4.7 billion gallons in 2004. In 2004, China stood as the third largest market with 3.1 billion gallons. Chinese bottled water volume has increased by double digits in four of the last five years. Brazil, the third largest market in 2003, slid to fourth place in 2004, as bottled water volume increased by 15.4% to nearly 3.1 billion gallons. Italy and Germany grew by 3.0% and 3.6%, respectively. Italy ended the year at 2.8 billion gallons and Germany at 2.7 billion gallons.

Ten of the top 15 bottled water consumers on a per capita basis are European countries, with Italians boasting by far the most established bottled water consumption tradition. At more than 48 gallon per person in 2004, Italians consumed about 4 gallons more per capita than Mexico, the country with the second highest per capita consumption at 44.5 gallons. The United Arab Emirates (UAE) was the only other country with per capita consumption greater than 40 gallons, although Belgium-Luxembourg and France were close. In 2004, Spain and Germany had per capita consumption rates of 36.1 and 33 gallons, respectively. The United States ranked 11th in terms of per capita consumption.

John G. Rodwan, Jr., is editorial director at Beverage Marketing Corporation, a New York-based research, consulting and financial services firm.

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Double-digit growth - health is the main market driver

By Roger Dilworth

Reprinted from the April 2005 issue of Soft Drinks International (softdrinksinternational.com)

The US functional beverage market consists of energy drinks, sports beverages and nutrient enhanced drinks. The latter segment includes vitamin-, mineral- and herbal-enhanced fruit drinks, teas, dairy drinks and waters. Wholesale sales of functional beverages was $4 billion in 2003.

Red Bull North America created the energy drink segment in the US when it established an office in California in 1997. Another California-based company, Hansen Natural Corporation, followed that year with Energy and other functional drinks. The segment has attracted new players in the past several years, including Coca-Cola, Rockstar, AriZona and PepsiCo. Wholesale sales of energy drinks grew to $653 million in 2003.

In the US, Red Bull has used distribution as a marketing tool, initially restricting the product to fashionable nightclubs in order to influence cultural tastemakers. This “opinion leader” strategy has contributed to its success, as Red Bull owned more than 60% of the energy drink market in 2003. The brand has not relied solely on underground marketing, however: it upped its advertising spending in the US from $2 million in 1998 to more than $40 million in 2003, according to Competitive Media Reporting. Although hip youths are the most visible targets of energy drink marketers, the beverages also appeal to overworked executives and truck drivers, among others. Diet energy drinks have emerged as a small sub-segment, which has expanded the consumer base. In addition to bars and nightclubs, energy drinks’ primary distribution channels are convenience and gas stores.

More energy increases share

Hansen Energy and Red Bull are packaged in the 250-ml (or so) slim cans that have come to characterize energy drinks throughout the world. However, energy drinks packaged in 16 oz cans have increased segment share because of their lower price per ounce. Hansen has enjoyed a significant growth in sales due to its 16 oz Monster line of energy drinks, while its slim-can drinks have stagnated. Similarly, in early 2005, Coca-Cola introduced Full Throttle, a 16 oz energy drink, to replace its slim-can product, KMX. PepsiCo, which sells SoBe Adrenaline Rush and Mountain Dew Amp slim-can energy drinks, also markets a 16-ounce energy drink under the SoBe No Fear name. Last but not least, independent beverage company Rockstar notched about $50 million in sales for its 16 oz energy drinks in 2003.

As in Europe, sports beverages are positioned and marketed as fluid replacement or thirst quencher beverages. Gatorade has enjoyed an 80+% share for most of the last decade. In 1994, both Coca-Cola and PepsiCo rolled out competitive brands – Powerade and All Sport, respectively. The cola giants grabbed most of the remaining 20% or so of the sports beverage market. However, the story changed in 2001. That year, PepsiCo sold the rapidly declining All Sport to Monarch Beverage Company and, more important, acquired Quaker Oats and Gatorade. In 2003, wholesale sales of sports beverages were $2.7 billion.

Science-and-sports strategy

In the last 20 years, Gatorade has pursued a science-and-sports marketing strategy. Quaker Oats claims that Gatorade’s 6% carbohydrate level is ideal for rapid fluid absorption. In addition, the company states that Gatorade’s higher-sodium formula is better suited for hot and thirsty consumers than competitors’ sweeter tasting sports drinks. Gatorade has conducted a long-running ‘Is It In You?’ advertising campaign, which features non-famous athletes “bleeding” coloured sweat. It has also employed myriad celebrity athletes – Michael Jordan being the most famous – and sewed up the most prestigious sports-related sponsorships.

Sports beverages have expanded their consumer base and usage occasions through the proliferation of package sizes and formats. (It is hard to envisage that Gatorade was once primarily in glass since it is currently overwhelmingly in plastic to fit its ‘on-the-go’ image.) For example, in 2001, Quaker expanded availability of ‘EDGE,’ a new-fangled ‘ergonomic’ sports cap plastic bottle that allows for easier gripping and handling. Gatorade has also created several extensions of its core Thirst Quencher line, ensuring a stream of new flavours to keep consumers loyal to the franchise.

Gatorade is a warehouse delivered brand and thus has a strong presence in supermarkets. But it, like Coke’s Powerade, has strong distribution as well in immediate consumption channels such as convenience stores. Other outlets like small groceries, drug stores and delis are also vital to the sports drink immediate consumption market. Also, a growing number of non-traditional retail outlets (e.g., sporting goods stores) have helped to augment the immediate consumption sales of sports drinks.

Marketed as healthy refreshers

PepsiCo’s SoBe was instrumental in establishing the nutrient-enhanced drink segment. Nutrient-enhanced drinks are marketed as refreshers, with healthy ingredients added as a bonus. While brand owners stress beverages’ nutraceuticals ingredients as selling points, they do not want the products confined to health food store aisles or specialty store shelves. Marketers highlight the presence of nutraceuticals but do so conservatively, usually without making definite, direct health claims, in order to avoid running foul of the US Food and Drug Administration and other government regulators.

The nutrient-enhanced drink segment has been a difficult one to predict in the past several years. The task is made more difficult by the fact that the category is very much image-driven. SoBe cultivated a ribald, anti-establishment, ‘extreme’ sports image, with relatively little advertising expenditures, but cynics wondered whether PepsiCo, which acquired SoBe in 2001, would be able to continue the juggernaut without extinguishing the entrepreneurial spirit that made the brand what it was. Although its high-growth days appear to be over, PepsiCo has enjoyed modest growth of SoBe in the past three years.

Nutrient-enhanced fruit drinks constituted nearly 70% of segment sales in 1998. By 2003, that number dropped to 24.4%. Nutrient-enhanced ready-to-drink teas fell from 28.8% of the segment in 1998 to 14.9% in 2003. Picking up some of the slack has been nutrient-enhanced dairy drinks, growing from 3% of segment sales in 1998 to 6.6% in 2003.

Rapid growth for enhanced

Enhanced waters grew sales from virtually nothing in 1998 to over $300 million in 2003 when they constituted more than half of the over $600 million enhanced drink market that year. Propel, a vitamin-enhanced water under the Gatorade trademark, is the leading enhanced water brand, with wholesale sales of $160 million in 2003. Energy Brands Inc.’s Glaceau Vitaminwater is the second-largest brand, with wholesale sales of about $65 million in 2003.

Nutrient-enhanced drinks are distributed in a multitude of channels. In the mid- to late-1990s, SoBe established its bailiwick in immediate consumption, cold drink channels such as delicatessens and convenience stores before gradually branching out to supermarkets and other future consumption outlets. Under the Gatorade distribution system, Propel has found broad distribution in both future and immediate consumption channels. Glaceau Vitaminwater started off as an immediate consumption brand, like SoBe, but can also be found in clubs stores and supermarkets.

Since 1998, functional beverages have grown by more than 10% per year. Americans’ willingness to embrace healthier beverage choices has been the main driver of success. This health trend is not expected to abate soon, resulting in continued double-digit growth for functional beverages until at least the end of the decade.

Roger Dilworth is Senior Editor, Beverage Marketing Corporation (BMC), founded in 1972, the leading supplier of information, consulting and financial services specialising in meeting the needs of the global beverage industry. For more information about "Sports and Energy Beverages in the U.S." visit http://www.beveragemarketing.com/?service=publications&section=sportsinus or call Charlene Harvey (formerly Salito), Beverage Marketing Corporation, Tel: 212-688-7640 ext. 1962.

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Coffee: Slow Roast:
A Slow Return to Growth

By John G. Rodwan, Jr.

Reprinted from March 2005 issue of National Petroleum News.

Despite a sixth straight year of volume growth, the U.S. coffee market has still not recovered from a series of contractions in the mid-1990s. However, certain segments of the market – particularly specialty coffee – have been showing strong growth.

Between 1993 and 1996, total coffee volume in the United States dropped by 12.4 percent, at least partially due to a frost in Brazil that killed large numbers of coffee trees and sent prices rocketing. Although global production started to increase in 1996, prices began to lower – 1997 saw a continued volume loss of 1.3 percent compared to 1996. Starting in 1998, volume began to recover, with three years of 1-percent-plus growth. In 2000, coffee volume surpassed 6 billion gallons for the first time since 1995. In 2001, volume increased by only 0.6 percent to 6.1 billion gallons. Coffee volume grew by 1.8 percent to 6.2 billion gallons in 2002 and by 1.3 percent to 6.3 billion gallons in 2003.

As late as 1993, per capita coffee consumption stood at 26.4 gallons, but it dropped to as low as 21.8 gallons in 1997 and 1998. In 1999, coffee per caps rose to 22 gallons. They stayed there until 2001, when they moved up to 22.1 gallons. In 2003, per capita consumption increased to 22.2 gallons.

The National Coffee Association, whose members represent nearly 90 percent of the U.S. coffee industry, suggests that coffee drinkers are consuming larger servings than the traditional 8-ounce cup. In a survey, one-third of respondents reported that they use bigger mugs. But the growth of milk-like coffee drinks in the last decade is also lowering the proportion of actual coffee in the beverage.

The U.S. coffee market consists of three basic segments: roast/ground coffee, instant coffee and ready-to-drink coffee. Roast/ground coffee accounted for more than nine-tenths of all the coffee consumed in the United States in 2003, and the segment’s share of total volume has been growing in recent years. Instant coffee’s volume and market share, in contrast, has been declining. RTD coffee remains a niche market, but the small segment has seen the strongest growth of any coffee category.

Specialty coffee is a broad category that includes coffee with flavorings such as chocolate, mint or vanilla, coffee positioned as the highest quality and/or roasted with the ideal techniques or even coffee from particular plantations. Although the overall U.S. coffee market has been sluggish lately, the specialty component has seen significant growth, with retail dollar sales approaching $9 billion in 2003. The segment’s sales in 2003 represented growth of 6.7 percent over 2002’s $8.4 billion. In 2003, coffee cafes – the approximately 11,240 retail locations including seating, such as most Starbuck’s outlets – generated $6.1 billion in retail sales, or 68.3 percent of the segment’s total. Coffee bean roasters and retailers – the 1,350 sites with on-premise roasting – accounted for 14 percent of sales with $1.3 billion. Coffee retailers without seating, also known as kiosks, had sales of $810 million, which represented 9.0 percent of the total. There were approximately 2,700 coffee kiosks operating in 2003. Mobile retailers (i.e., carts) accounted for an additional 3.2 percent of sales, with all other channels responsible for the rest.

John G. Rodwan, Jr., is editorial director of New York-based research and consulting firm Beverage Marketing Corporation.

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