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Darren Rovell: First in Thirst: How Gatorade Turned the Science of Sweat into a Cultural Phenomenon
Out in bookstores and online NOW. Published by AMACOM in August 2005.
Darren Rovell & David M. Carter: On the Ball: What You Can Learn About Business From America's Sports Leaders
Published in February 2003 by Financial Times Prentice Hall.
« October 2005 | Main | December 2005 »
Gatorade will spend at least $20 million on an ad campaign for Gatorade Rain, according to this week's Brandweek. The advertising, which will be done by Element 79 Partners will use top athletes and have the tagline "Cool. Crisp. Clean." The spots will break in March.
I attended Street & Smith's SportsBusiness Journal's Motorsports Forum in New York City yesterday and had a chance to hear and speak with Scott Paddock, senior manager of sports marketing for Gatorade. The highlights are below. You will notice that it seems as if the POWERade/Gatorade NASCAR controversy is now resolved. It was heavily speculated, given the troubles in 2003 and 2004, that one of the sports beverage brands would completely pull out of the sport because of cannibalization. That hasn't happened and apparently all is resolved.
On why Gatorade decided to do deals with teams and drivers and allowed POWERade to score the official beverage status of NASCAR: "The beauty of this sport is that there are just so many opportunities for entry – but it’s also the challenge of this sport as well. We’ve had a nearly 30-year involvement with this sport. As our business in this sport has evolved, so too has our motorsports involvement and strategy. I think early on we were tied into a car because we wanted to grow awareness of our brand, we were a primary sponsor. Then we moved over to official status designation – to give us a link to the teams and we held that position for nearly 20 years. More recently we shifted over about four years ago to more of a team and a track strategy. And it has worked well for us. The thing about the sport is that it’s impossible now to own everything and it’s cost prohibitive to do so. So we’ve taken the approach that the landscape has changed, the right vehicle that we are looking for now seem to be controlled by drivers, teams and tracks...To call yourself the official sports beverage of the NFL, it’s meaningful, it’s relevant because on every NFL sideline you are going to see Gatorade branded cups and coolers. Frankly, that’s a little bit of what we struggled with with our relationship with the sanctioning body. A couple years ago, what did it mean to call yourself the official sports drink of NASCAR when every team was cutting their own deal and there was no kind of consistency with product placement and merchandise that you had? That’s why we made the change to the driver-team platform.”
On the POWERade/Gatorade controversy: "Part of what we are buying is a sponsorship from a team or a driver is their endorsement – the fact that they believe in and utilize your product. But the endorsement only maintains its integrity to the extent that it’s applied consistently and without exception. And so a couple years ago with the whole bottle incident – a Gatorade endorsed driver pulling into Gatorade victory lane (which was sold by the track) and there’s a POWERade bottle that’s put on the roof of the car (by NASCAR), creating an implied endorsement between that driver and that brand. That confused me. I can imagine what it did to the average fan...We’re pretty happy with the decision we made. If I were powerade and I was an emerging brand, I would have probably made the same move that they did – coming in and establishing their brand by building credibility through a relationship with the sanctioning body. For our brand and our objectives and where we were at in our history, it was the right move for us to make.... This sport has always been about everyone stepping on everyone else’s toes and no one saying ‘Ouch.’ What I mean by that is that at the end of the day everybody could kind of coexist with their competitors in a particular category and achieve what they wanted to achieve. I think with the price of doing business going up, I think more and more so sponsors want to delineate where their rights begin and end and I think NASCAR has always operated in a bit of a grey area and I think it has always worked to their advantage. But I just wonder if sponsors are going to be willing to accept those terms like before or are they going to want a clear understanding of their rights."
I've spent plenty of time talking about POWERade's answer to Propel, POWERade Option. Well, now it's time to talk about POWERade Advance because that could be closer to the next great idea. The drink is a hybrid beverage that contains the key ingredients of both sports and energy drinks. Coca-Cola is describing it at "hydration with a boost." It will have the electrolytes that are featured in POWERade and the caffeine and taurine that is part of the company's Full Throttle energy drink. Two flavors -- Cherry Lime and Berry -- will debut in January 2006. I'll let you know when I find out more about this and perhaps I'll get a taste before it hits shelves.
Writing "First In Thirst" was a tremendous experience for me. It took me about a year -- six months worth of researching, three months worth of interviewing and three months worth of writing. In the process of trying to get to everyone, I left a couple people out. This happened because I either had trouble finding people or felt I had heard enough of the story from those involved. There was little excuse for me to not work harder to get Bill Smithburg, who was CEO of Quaker Oats at the time of the Gatorade acquisition from Stokely-Van Camp. I got in touch with Bill soon after the book came out and right after speaking to him felt this sick feeling in my stomach. I'm proud of my book, but I should have had Bill's personal experience in there. So I felt the next best thing was to at least offer some of his perspective on my blog.
Thankfully, Bill wasn't enraged enough to turn down my offer. First let me tell you a little bit about him. After receiving a bachelor's degree from DePaul and an MBA from Northwestern (my alma mater), Bill joined the Quaker Oats Company in 1966 as a brand manager. By 1976, he was executive vice president of the company's U.S. Grocery Products division, the largest division in the company. He was named to the company's board of directors in 1978 and was named president and chief operating officer the following year. In 1981, he became the company's CEO and he held that position until retiring in eight years ago.
Me: Bill, you obviously had a tremendous career. Where does the acquisition of Gatorade and working with the product fall on your list of career highlights?
Bill: It was absolutely the most exciting, interesting and fun period of my entire career. Gatorade was so great that after we acquired it, no one wanted to work on anything else. Everyone wants to be part of a great product that has such growth potential.
Me: When did you first hear about Gatorade?
Bill: I first heard about Gatorade sometime in the 70s. I've always been very active in sports and I used to play competitive handball, as well as tennis and skiing. But it was mostly tennis that gave me exposure to the product. On a hot summer day, I'd always have a bottle of Gatorade. It wasn't touted as a miracle product, but it worked to rehydrate me and reenergize me better than water or soda. And I wasn't full like I was when I drank the others. So I looked at the label and found out it was made by Stokely-Van Camp.
Me: Did that surprise you?
Bill: Well, I was watching the company and I was surprised how they never featured it. It was almost like Gatorade was their little stepchild. I always wanted to buy Gatorade and so when Stokely-Van Camp went up for sale, I thought we should bid on it.
Me: How attractive were their other assets?
Bill: I believed in Gatorade. I didn't care about the rest of the company. This was truly their jewel. They invented the category and none of the big guys were in it. It already had brand equity and Quaker Oats understood that.
Me: You obviously won the bidding war. Was there any drama?
Bill: Oh yeah. The investment bank was telling us it was worth between $74 and $75 per share. But I said, 'The hell with that, I want this product.' So we bid $77 a share. They told me that we'd be strongly criticized for overpaying. But I wanted to win. Well, it turns out that Mike Miles (who went on to be chairman and CEO of Phillip Morris) at Kraft wanted it too. The rule was that if two bidders were within a dollar of each other, there would be a re-bid. Well, we won it because Kraft put in a bid of something like $75.50 a share and we beat the dollar rule by 50 cents per share. Of course, the criticism was intially there. I remember one of the headlines was, "Market Doesn't Care Beans For Stokely."
Me: But things seemed to work out.
Bill: We officially took over in the summer of 1983 and August 1983 was one of the hottest months in the history of the planet and Gatorade just took off. We avoided keeping it as a narrow superjock product and we solidified our deals with all the major sports leagues. We didn't have to pay individual athletes to be in Gatorade commercials because our sponsorships with the leagues provided those commercials in a natural setting. Why would we need a commercial with Walter Payton or Larry Bird if those guys would be shown drinking our product during a game? From 1984-1991, we never used a sports star in our ads.
Me: For that entire time, Quaker Oats got a great bang for their buck on "Gatorade is Thirst Aid, For That Deep Down Body Thirst!"
Bill: What a great campaign that was. It was just the perfect advertising line that encompassed the positioning of the brand. We didn't say, 'Drink this and score a touchdown.' But what we did say is, this really quenches your thirst and we demonstrated the physiological benefit.
Me: Stokely-Van Camp only had two flavors for their entire history -- Lemon-Lime and Orange -- what was the flavor strategy?
Bill: Well, we definitely wanted to diversify and fruit punch came in the year we acquired the brand. The funny thing is, we had these long debates in our first year whether or not we should get rid of lemon-lime. Some people thought it didn't taste good enough. Well, even today, I believe it's Gatorade's best selling flavor.
Me: How did Gatorade's growth compare to other products in the Quaker Oats portfolio?
Bill: We could easily forecast sales for Captain Crunch or oatmeal, that wasn't the case with Gatorade because it was growing so quickly. We were having double digit growth every year, as opposed to the consumer packaged business. In that world, if you can grow three percent in sales volume every year, you are doing really well. Gatorade was growing by more than 10 percent every year from the day we bought it.
Me: Were you surprised that the Coke and Pepsi weren't getting into the sports drink business throughout the 80s?
Bill: We didn't want to wake up a sleeping giant. We were always watching what their response was to Gatorade's growth, but it's amazing that we had it for about 10 years before they got into Mountain Dew Sport (later All Sport) and POWERade. Then, when it hit (in 1992), we were most worried about POWERade. Coca-Cola was the 800-pound gorilla because they had such a tremendous distribution system. All Sport, with the carbonation, was just never a legitimate product.
Me: In business schools across the country, you see case study after case study about Gatorade, but plenty of them are about how Quaker Oats tried to turn Snapple into a Gatorade (here's one of those papers: mba.tuck.dartmouth.edu/pdf/2002-1-0041.pdf). What's the real story?
Bill: When we bought Snapple (for $1.7 billion in 1994), we bought it on a downslope. We knew it wasn't going to die and we felt we could turn it around fast. We were wrong. The down slope was steeper than we thought and it took longer to turn around. We thought that we would stabilize things in Year One and that really happened in Year Two. A lot of the criticisms concerning what we did with Snapple are not accurate (Snapple was sold to Triarc in 1997 for $300 million). I will say that we did do a couple things right and one of them was refusing to milk the marketing budgets of Gatorade or oatmeal to make the short term better for Snapple. We definitely took our lumps on Snapple, but if you look at Gatorade when we had Snapple that business never missed a beat.
Me: Gatorade sales outside the United States are not particularly impressive. Why do you think that is?
Bill: We didn't do much outside the United States. And the international strategy was not our strategy. In Italy, they were going after super athlete endorsers, which narrowed the focus of the drink to athletes.
Me: What do you think about Gatorade putting its Endurance Formula (a niche product) into mass retail channels?
Bill: Well, the supermarkets will take anything from a strong franchise, but Gatorade has to be careful not to overdo line extensions. (Gatorade president) Chuck (Maniscalco) is a darn good marketing guy and he'll make sure to keep an eye on it.
Me: If there's one product that you think Gatorade should have but doesn't, what is it?
Bill: I'd like to see them to a power gel of sorts. We had one, but that sort of product does better when it is developed by entrepreneurs, not necessarily big companies. I think doing a gel could be enormously profitable.
I'd like to thank Bill once again for his time and hopefully he will check back in with us every once in a while.
In last night's 99-91 victory by the Minnesota Timberwolves over the Milwaukee Bucks, Kevin Garnett went nuts. He missed 8 1/2 minutes of playing time in order to get six stitches on his chin. But when he returned, he scored 10 straight points that proved to be the end for the Bucks. So to what does Garnett owe his burst of energy to? Gatorade, of course. "Sometimes the Gatorade works like Red Bull for me. You put sugar on top of sugar on top of sugar ... and I've already got sugar inside of me and it's like espresso." Sounds like a pretty innocuous quote, right? Until you read it as if you were an 18-year-old kid looking for energy in your next sporting event. If Gatorade sometimes works like Red Bull, why wouldn't you just use Red Bull every time? The only reason I make an issue out of this is because Gatorade is having to battle it out with the energy drinks in the locker rooms. I've seen it. And just look at the post below on the success of energy drinks over sports drinks. The people at Gatorade can't control everything that comes out of the mouths of their endorsers, but as a Gatorade spokesman, Garnett should be careful with how he phrases things. On a side note, this isn't the first time he's attributed his game performance to Gatorade. After losing to the New Jersey Nets in March, he told a reporter that his lackluster play was due to "too much coffee and Gatorade." At the 2003 NBA All-Star Game, where Garnett won the MVP, he said, "I thought I drank too much Gatorade in the beginning."
The energy drink market is 32 years younger than the sports drink market, but it's growing much faster. According to Beverage Digest, energy drinks have grown 61 percent this year and energy drink profits are surpassing sports drinks as well. Today's New York Times mentioned that Coca-Cola analysts project that energy drink profits from 2005 to 2008 for the entire industry will be $540 million. That's compared to $130 million for bottled water, $210 million for soft drinks and $290 million for sports drinks. PepsiCo owns Sobe No Fear, Adrenaline Rush and Mountain Dew MDX, while Coca-Cola's top brand is called Full Throttle.
After a couple weeks of working the phones, I finally have news on Gatorade's new product. Read carefully, since we are the only media outlet reporting it at this time. The product, as suspected, is called Gatorade Rain. It's a sub-line that promises a cool, crisp flavor with a cleaner finish than everyday Gatorade. I know, what does cleaner finish mean? I'm hearing that the inspiration behind all of this is that in focus groups with athletes, some of them told the folks at Gatorade that they wanted a drink that gave them all the benefits of Gatorade, but with a lighter taste and less of an aftertaste. I thought that was what Gatorade Ice was for, but apparently this is significantly different. (Note: The only Ice flavor left is Watermelon, according to the Gatorade Web site). Starting this winter, Gatorade Rain will be available in three flavors -- Berry, Tangerine and Lime -- at grocery, convenience, mass and club stores. They will be sold in 32 oz., 64 oz., 8 packs of 20 oz. and 6 packs of 24 oz. I'm thinking the early favorite is Tangerine, but I haven't been able to get my hands on any of them yet. When I do, I'll let you know. Reader Rhand Lawson reports that it tastes more flavored water and one of the ingredients is vegetable juice!
Former Dallas Cowboys defensive back Everson Walls was on ESPN2's "Cold Pizza" this morning with Element 79's Nicky Furno. We've previously talked about Walls' fake celebration after Joe Montana overthrows Dwight Clark in the endzone in the new Gatorade-altered ad. The buzz was based on the fact that the play was only on third down. When I interviewed Nicky, she said that the advertising firm considered that there would have been one more play, but in the end, they decided to have the Walls stand-in celebrate. So what does Walls himself think? "I don't think I would have celebrated so much on that play because it was third down," he told Jeremy Schaap. What's his solution? "You should have had me intercept the ball," he said. "That would have added more." I was shocked that Walls claimed he didn't see the advertisement before he saw it on his television. "When it came on, I wasn't prepared to see it," he said. "I didn't have a private screening, so I was doing something in the house and I saw it and said to myself, 'There it comes again.' But then I thought, 'Wow, he missed it.' Then I looked at the guy celebrating and said, 'That's not me.'" How would Walls' life change if the 49ers really didn't win. "I probably would have ended my career with the Dallas Cowboys," Walls said. The four-time Pro Bowler played nine years with the Dallas Cowboys. He then went on to a career with the New York Giants and Cleveland Browns.
I've always been surprised at how small of a business Gatorade is outside of North America. The sports drink brand will once again do more than $3 billion in gross sales in the U.S. this year, but international sales are at about $500 million. Why is there such a big difference? Well, because Stokely Van-Camp, Gatorade's first owner (1967-1982), didn't do much internationally with the brand, and its second owner Quaker Oats (1983-2000) had international strength in cold places because of its oatmeal, not warm places where Gatorade would sell better. Gatorade has its biggest international success in Italy, Mexico and Brazil, but in England, Lucozade rules and in Asia, it's Pocari Sweat and Aquarius (owned by Coca-Cola). Well, the British can look forward to more Gatorade in the future. Earlier this week, it was announced that their sports drink giant Britvic, which makes Robinsons, Tango, J20 and Fruit Shoot brands (I haven't heard of them either), will be distributing Gatorade. As part of the deal, Gatorade vending machines will make their debut in England. The only flavors available will be lemon-lime and orange in 500-milliliter bottles. According to Britvic officials, Gatorade will play a central role in supporting the Gatorade-sponsored British National soccer team throughout the 2006 World Cup. A Britvic news release said that nine million people in England exercise at a gym, with half those people working out at least two to three times a week.
On Wednesday, yet another school board banned soda sales from schools, but decided that Gatorade made the cut. Carbonated beverages will be removed immediately from Miami-Dade County and the only permitted drinks will be water, milk, unsweetened fruit juice and Gatorade and POWERade. The ruling, aimed at curbing childhood obesity, also banned king-size bags of cookies and other snacks. What is Coke and Pepsi's loss will be Gatorade's gain, which isn't necessarily a good thing because PepsiCo owns Gatorade anyway. It is true that Gatorade provides roughly half the sugar in soda, but the interesting thing about all of this is that Gatorade isn't good for you if you drink two or three bottles, while you are sitting inside all day in the air conditioned school and don't work out.
