Sports Drinks See New Competitive Landscape (2024)

When the Coca-Cola Company announced in November 2021 that it was acquiring challenger brand BodyArmor for $5.6 billion, it was a signal to the industry that the sports drink category was officially entering a new era. Though co*ke, through its ownership
of Powerade, had long been the number two player in the space, it was always an afterthought to PepsiCo’s Gatorade. But with BodyArmor – the Repole-and-Collins founded, Kobe-backed upstart that recently passed PowerAde in sales volume, the acquisition solidified co*ke as a formidable asset holder.

Now, nine months after the deal, BodyArmor has been integrated into the co*ke system (buoyed by founder Mike Repole and other longtime staff staying with the brand, at least for now) and the sports drink set is rapidly evolving around it. A myriad of new brands – among them Canopy Growth’s BioSteel and the Logan Paul-backed PRIME Hydration – have seized on the disruption to try to expand the set, whether through star power, next-generation hydration, or a defiant stretching of traditional

category definitions.

All the while, Gatorade – the long-entrenched category leader – is working to adapt by embracing new functional innovations such as hydration-boosting Gatorlyte and Gatorade Fit, sugar free Gatorade Zero, and Gatorade Zero with Protein.

According to NielsenIQ, sports drink retail dollar sales rose 7.9% to $9.1 billion in the 4-week period ending June 18, 2022, and were up 14.3% in the 52-week period. The growth was in large part driven by price increases, with average pricing climbing up 17% in the 4-weeks, while sales volume dropped 7.7% in the same period.

PepsiCo retains its post as the category leader, reporting dollar sales growth of 9.1% to $5.9 billion in the four-weeks (up 9.7% for 52-weeks), while co*ke faced a 2% decline in the four-weeks (+17% for 52-weeks) to $2.7 billion. That short-term sales slide is deceptive, however. co*ke – primarily through the BodyArmor business – has outpaced PepsiCo over a three-year stack basis.

Blurred Lines

Kaumil Gajrawala, managing director of equity research at Credit Suisse, noted that while the short term volume declines and high pricing are a reflection of the inflationary pressures affecting almost the entire food and beverage sector – both a result and a transition away from last year’s supply chain disruptions – the category is experiencing significant disruption via innovation and new players.

“Maybe the first and most important thing about the sports drink category is recognizing the degree to which the lines in the category have blurred between segments,” Gajrawala said.

He noted that functional traits such as energy and hydration have increasingly become more prominent within sports drinks.

While sports drinks have always relied on added electrolytes to boost hydration, crossover with products like coconut water and
enhanced waters has risen steadily. Sports drinks, Gajrawala said, are “right in the center” of the health and wellness macro trend
that is redistributing market share away from entrenched brands and towards emerging better-for-you products. Meanwhile, consumer demand for low-sugar and low-carb beverages are turning them towards new innovations and even other categories, such as alkaline water.

As well, the rise of subcategories like fitness and performance energy (i.e. Bang, CELSIUS, C4, etc.) has also reconfigured the use occasion for traditional sports drinks, bringing athletic consumers into the energy space and creating even more competition for share of stomach. But despite the more crowded grocery shelf, the expanded definition of sports drinks and the wave of innovations is benefitting the category and leading to a marketplace where smaller brands are better able to gain a foothold.

“I think the definition of the market is broader than what we might have looked at before, which would have been Gatorade,
Powerade, BodyArmor – it’s much broader than that,” Gajrawala said. “But that’s okay, because when you have a bigger market, you have a lot more players. And perhaps it’s a bit more fragmented, but it is also much more appealing and you may have a better ability to scale.”

Sportswriter Darren Rovell, a partner in CPG investment firm Tastemaker Capital and a former BodyArmor investor, is bullish on the space, noting that the long-term double-digit growth reflects a surge that is greatly outpacing historical sales trends from the days when Gatorade was the lone dominant player.

Rovell, who once authored a book on Gatorade, noted that while BodyArmor may still only comprise a fraction of Gatorade’s sales
– IRI reported its retail dollar sales at $1.6 billion in the 52-weeks ending June 12, 2022 – he said the brand still has enormous white space to grow, which justified co*ke’s company record acquisition price. Prior to the sale, BodyArmor prioritized major U.S.
markets, declining to build out international operations. That strategy has now left a long runway for co*ke to scale the brand in smaller American territories and the entire global market.

“When you think about BodyArmor selling for what it did, when you talk to people, anecdotally, you can find people throughout the country who haven’t tried it – which is amazing for a brand that was valued at $8 billion [prior to acquisition],” Rovell said. “So it just goes to show you how much ramp up there potentially can be.”

Gatorade for its part is working to keep ahead. Carolyn Braff, head of brand strategy, told BevNET via email that innovation is a key focus for the company as it sees more pressure from competitors.

“We know every athlete is unique, and they need personalization to be at peak performance – there is no one-size fits all approach
to fuel for athletes,” Braff wrote. “Our focus as a brand is delivering more choices to athletes based on their fueling needs and preferences. We are also growing our beyond-the-bottle offerings through powders, reusable bottles and equipment, and our Gx line of personalized sports fuel solutions.”

But it’s not just BodyArmor that Gatorade needs to pay attention to anymore, even if the closest competition is still a ways away from vying for the belt.

BioSteel Suits Up

Toronto-based sports drink brand BioSteel, a subsidiary of Canopy Growth, has quickly risen to prominence within the past
few years through a series of high profile pro sport and athlete partnerships, as well as expanded distribution for its zero sugar RTD line. Though IRI reports the brand’s total retail dollar sales at just $5.8 million over the 52-weeks ending June 12, RTD sales are up 396.1%. And that’s only the U.S. business, as the brand – co-founded by former NHL left wing Michael Cammellari and business partner John Celenza – has already built out a deep footprint in its native Canada.

Last year, a report by Goldman Sachs Equity Research called BioSteel an “emerging disruptor in the sports drink category” that “reminds us of an early stage BodyArmor.” While exclusive sponsorships with pro teams like the NBA’s Los Angeles Lakers, Brooklyn Nets and Dallas Mavericks among others – as well as individual athletes such as the NFL’s Patrick Mahomes – have gone a long way toward seeding national brand awareness, BioSteel is about to get an even bigger exposure boost this year as the Official Sports Hydration Drink of the NHL. In July, the brand announced that it had secured league-wide rinkside marketing rights, kicking off its exclusive sponsorship during the 2022 NHL draft, succeeding Gatorade as the sole sports drink partner for the league.

The NHL partnership came only a week after the brand named former Constellation Brands Chief Commercial Officer
Bruce Jacobson as its president, a move that furthered the synergy between BioSteel and Constellation, which is a minority owner of Canopy Growth. In the U.S. BioSteel is also distributed by roughly 200 Constellation-aligned DSD houses nationwide. With nationwide marketing now ramping up, the company now aims to be in about 15,000 doors by the end of 2022.

Jacobson told BevNET that the NHL deal represents “the perfect partner at the perfect time.” Though the company is only in the early days of its U.S. retail expansion, BioSteel is already well established in Canada with nearly 90% ACV in the convenience and gas channel – making a pro hockey sponsorship even more significant north of the border. For the U.S., Jacobson said the brand has a long runway to gain distribution and, although recent additions like Walmart and Publix help increase availability, BioSteel now aims to tap the NHL sponsorship to drive velocity and add new accounts. After the announcement during the league draft, Jacobson said the brand received a number of calls from interested retailers and the company is working to grow its footprint so consumers who discover BioSteel through hockey games can find it in stores.

“We know that we have to balance building the availability through distribution, as well as building the velocity for the brand as well, and that comes down to consumer awareness and helping the consumer find the brand and understand the brand,” Jacobson said. “You really have to do those two things in concert. And so that’s why we’re investing not only in building the availability of the brand and doing that through distributors and retailers in the marketplace, but we’re investing in the pull of the brand and the NHL was one of those things from a marketing standpoint.”

Startups Seek a Stake

While the odds of becoming a billion dollar brand are slim for any startup, Rovell noted that the recent shifts in the sports drink category have made it (relatively) easier than ever for an upstart brand to get going, and it’s no longer a given that Gatorade will quickly edge out any new competitor; “There’s a graveyard of sports drinks scattered along the highway that died not because they weren’t good, but because Gatorade … did such a good job of not even allowing them to happen,” he said.

But routes to the consumer have expanded. Rovell pointed to the swift launch of PRIME Hydration, a sports drink brand founded by YouTuber Logan Paul and rapper KSI – which reported over $17.5 million in retail sales in less than a year on the market, per IRI – as one example of a new company finding place to play in the category, as well as BioSteel, which he said has “probably gotten farther than any brand other than BodyArmor” in establishing themselves as a serious competitor.

“I think everywhere in the beverage category, it’s easy enough to start up,” Rovell said. “There are co-packers, there are people
who have space, out of COVID there’s a lot of freelance people so you can start up with consultants and not [have a] payroll. What used to be Mom and Pop for one or two years, now you can immediately start a real business. That doesn’t mean that they’re going to be successful, but I think in every beverage category it’s certainly easier to start up a brand. And I think, you know, sports drinks is a sexy category.”

Brands like BIOLYTE, Hoist, Nooma, GoodSport and O2 are all now vying for that slice of the pie, positioning themselves as healthier, innovative alternatives to the leading brands.

Though it is not yet sold nationwide, Georgia-based BIOLYTE is already among the largest independent players in the sports drink category. Founded in 2017, IRI reported that the family-owned brand’s retail dollar sales were up 82.6% in the 52-weeks ending June 12 to $32.7 million, placing it behind only Electrolit and private label products among the non-co*ke and Pepsi brands. Founded by former anesthesiologist Dr. Trey Rollins, BIOLYTE purports to have six times the electrolyte content of standard RTD sports drinks, putting it on par with a medical I.V. drip.

BIOLYTE CEO Jesslyn Rollins, the doctor’s daughter, said the brand is now available in nearly 18,000 retail locations despite only having distribution as far west as Arizona and as far north as Ohio. This summer, the brand made the leap from the enhanced water set in Publix stores to the sports drink shelf, and Rollins said the company is pushing to position itself as a sports drink in its other retail partners.

“The reason why [repositioning as a sports drink] was a very good move is because that’s where people are going to get their recovery products,” Rollins said. “When you get sick, when you are uneasy and you need a pick-me-up and you need electrolytes, sports drinks – title be damned – that’s where people are going.”

To date, BIOLYTE has been bootstrapped and as of two years ago hit profitability, Rollins said. The company has now grown to 31 full time employees, most recently bringing on a CFO, and aims to continue expanding its footprint nationwide. Though the brand has rebuffed traditional sports drink marketing trends, such as athlete influencers and sports-themed ad campaigns, Rollins said the company is embracing those blurred category lines and positioning itself with consumers as the most efficacious hydration
beverage available.

“Because BIOLYTE has a medical undertone, people are apt to think ‘Wait, when can I drink this? I don’t know how to drink that. How many can I have?’” she said. “Those are a lot of questions that our team needs to do a better job of explaining in very simple terms. But, you know, BIOLYTE is a phenomenal recovery drink and when it comes down to it, it’s just a drink.”

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