Opportunities for PepsiCo’s Gatorade in Latin America

Latin America continues to offer market leader Gatorade strong opportunites for growth, although it cannot afford to lose focus with Red Bull and Powerade slowly gaining market share.

PepsiCo has reported strong sales growth of its flagship functional drinks brand Gatorade in international markets. Outside the US, Latin America is currently the most important region for the American brand, accounting for around 10% of its global sales.

Thus, its success in the region will have implications on its global position as Latin America is expected to continue to offer good prospects for further growth.

Driving profitable growth in Mexico

Gatorade is the market leader in the Latin American functional drinks market with a volume share of 73%, thanks to its dominance in Argentina, Venezuela, Mexico and Colombia. Increases in sales were mainly driven by the robust economic growth in the region, as is the case for other major FMCG brands. FMCG multinationals have realised that the market is now ready for the introduction of high-value products in order to move up to the next stage of development from increasing consumption levels to driving profitable growth.

It is this situation which faces Gatorade in its largest Latin American market, Mexico, where the booming economy and rising levels of disposable income mean a growing number of consumers are able to afford the drink. Moreover, Gatorade has been able to trade on the strength of its brand image and increase its price point, in contrast to other soft drinks brands which have cut prices in the face of fierce rivalry between supermarket chains. This is clearly encouraging for the American giant whose cash cow carbonates business saw a decline in sales in 2006.

Changed packaging to appeal to children in Argentina

Marketed as a sports drink, Gatorade was originally aimed at adult consumers who were either athletes or who regularly engaged in sports activities. As the overall market grows, the American giant is looking for new consumers to drive volume sales.

In Argentina, PepsiCo changed the brand’s packaging format and introduced Gatorade packaged in a smaller-sized carton container, which effectively helped the brand’s penetration of schoolchildren. In addition, PepsiCo extended the brand and introduced specific sports-related products such as Gatorade Fútbol (soccer) to boost sales.

In order to make the product more relevant to the locals in Colombia, PepsiCo reformulated Gatorade to suit local tastes. Gatorade commands a leading volume share in the country and doubled its sales from 46 million litres in 2003 to 91 million litres in 2006.

Growth potential ahead

Euromonitor International believes that good growth opportunities exist for Gatorade in the next few years in light of strong economic growth predicted for the region as a whole. The improvements in living standards and affordability levels will translate into organic increases in per capita consumption of high-value soft drinks.

Gatorade targets younger consumers and the demographics of the region will benefit this strategy. Brazil boasts the highest number of 15-34-year-olds at 65 million, followed by Mexico with 39 million. These consumers are expected to trade up to functional drinks from carbonates as the health and wellness trend continues.

The overall functional drinks market in Latin America is set to expand by a volume CAGR of 9% over 2007-2011, translating into a net increase of US$1 billion. Looking ahead, functional drinks is becoming a major battlefield for soft drinks players, and rival companies such as Red Bull and The Coca-Cola Company will continue to increase their investment in it.

In fact, Gatorade’s market share has been cannibalised noticeably by Red Bull and The Coca-Cola Company’s Powerade over the past six years, although these rival brands are unlikely to post any serious threat to Gatorade in the short to medium term. Thus, PepsiCo needs to constantly increase its presence and market Gatorade aggressively in order to regain and expand its market share.