Sports drink game is a serious contest

As Powerade threatens its market leadership, Lucozade Sport is preparing a marketing blitz.

Lucozade Sport may be way out in front in the sports drink market, but it is looking over its shoulder at newcomer Powerade, which is chasing hard.

Lucozade Sport owner GlaxoSmithKline (GSK) has taken the decision to give the sub-brand its own advertising agency, M&C Saatchi (MW last week). Ogilvy & Mather, which had been handling the entire Lucozade portfolio, will retain responsibility for the rest of the business.

The split between agencies, after such a long time with O&M, is an indication that Lucozade Sport is preparing to fight off pretenders to its market-leading position.

Dominance in the sports drinks sector is worth fighting for – observers expect impressive growth. Worth an estimated £97.5m in 2001 (AC Nielsen), the sector is thought to have grown by 50 per cent in volume in 2002.

Sports drinks, which are a separate animal to functional energy drinks such as Red Bull, are formulated as aids to post-exercise rehydration. They also help to replenish carbohydrates and electrolytes.

Lucozade Sport, launched by SmithKline Beecham in March 1991, has dominated the market for years and accounts for 17 per cent by volume of the total energy drinks market, which includes functional energy drinks. But Coca-Cola Great Britain’s relaunch of Powerade in November 2001 (MW November 15, 2001), supported by the soft drinks giant’s distribution network, is providing GSK with its first serious challenger.

GSK plans to increase marketing investment in Lucozade Sport by ten per cent to £22m for 2003. The company spent £4m on advertising alone in the year to September 2002.

For the year to the end of November 2002, Powerade had 3.5 per cent of the total energy drinks market and claims 20 per cent of the sports drinks market by volume. A Powerade spokeswoman says that the brand will get a “heavyweight marketing campaign” this year, including television. However, in the year to September 2002 it spent only £1m on advertising (Nielsen Media Research).

Other players in the market include Umbro Hypotonic and Isostar, which are strongly entrenched at the specialist end of the sector, as w

ell as US market leader Gatorade. Gatorade is now owned by PepsiCo, following the latter’s acquisition of the Quaker Oats Company in 2000. In the UK, however, it is independently distributed by Farmlea Foods, part of the SHS Group. PepsiCo refuses to say when distribution rights will revert to it, along with full marketing control.

GSK Nutritional Healthcare vice-president of marketing Peter Harding says that although the sports nutrition market is increasingly competitive, Lucozade Sport is in a strong position and is still growing – sales were up 28 per cent by value last year.

He says that the company moved Lucozade Sport to M&C Saatchi because “the sport and energy brands are focused on different needs, so it makes sense to approach them differently, whether through the same agencies or not.”

However industry observers believe GSK was forced to seek fresh thinking for the brand because the energy drinks sector has become more competitive. One agency observer, who has worked on drinks in the past, claims that by splitting the Lucozade business GSK will have given an incentive to both agencies to prove their worth.

In the past, GSK has made no secret of the need to earn the respect of sportsmen and women for its Lucozade Sport brand. Jo Shinner, marketing manager at Drinkmaster, which produces single-shot servings of Isostar for gyms, says that when people become serious about exercising they often move away from the mass-market brands.

O&M’s last television campaign for Lucozade Sport employed the services of Liverpool FC and England striker Michael Owen. But M&C Saatchi, which is keeping its creative idea secret, has indicated that any new campaign will not feature a celebrity sporting spokesman.

M&C Saatchi joint chief executive Nick Hurrell says the brand “needs to become more muscular” in the face of competition and that the advertising “should be as high-quality as the best sports brand’s advertising”. He adds that M&C won’t be using soft drinks advertising as its benchmark, but will seek to match brands such as Nike or Adidas in quality and dynamism.

However, there are underlying problems for Lucozade. Chris Wood, chief executive of branding consultant Corporate Edge – and someone who has specialised in the soft drink and sports drink sector – says the Lucozade Sport brand “is a major player in the centre-ground”, but that its position becomes “more complicated” as variants are created to cover other categories.

GSK has already launched one brand extension – Lucozade Sport Carbo-Gel (MW August 8, 2002) – and is developing a Lucozade Sport cereal bar.

Harding defends the extension strategy: “We take our lead from the needs of sports participants. They are interested in sports nutrition, not simply in sports drinks.”

But Wood points to a bigger problem facing GSK: “The company does not belong in soft drinks. It does not have the expertise and presence of Pepsi and Coca-Cola.”

As Wood points out, there are parallels in Lucozade Sport’s situation to Gatorade’s original position. Gatorade was not a natural fit in the Quaker product range, and it is now better placed in the PepsiCo empire. At some point, industry insiders believe that GSK will sell off the Lucozade portfolio and concentrate on its core pharmaceuticals business.

However, the immediate future for all forms of energy-enhancing product looks strong – GSK has no immediate need to worry about Lucozade Sport running out of steam.

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