Published on BeNET.com
Written by Ray Latif
Dr Pepper Snapple Group (DPSG) has increased its ownership position in BodyArmor, having invested an additional $6 million in the premium sports drink brand. The deal, finalized in March, comes approximately seven months after DPSG acquired an 11.7 percent stake in BodyArmor for $20 million. DPSG now owns 15.5 percent of the brand, and, as a result of the investment, is the second largest shareholder behind BodyArmor chairman and co-founder Mike Repole.
In a call with BevNET, Repole said that the funding will go toward new staffing and marketing initiatives, including an upcoming media campaign scheduled to launch this week.
Formulated with natural electrolytes, coconut water and vitamins, BodyArmor is marketed as a natural and better-for-you alternative to sports drinks that are made with artificial ingredients. Launched in 2012 by serial beverage entrepreneur Lance Collins and Repole, the former president of vitaminwater, the brand is distributed nationally and has been part of DPSG’s allied brand portfolio since 2013. DPSG’s direct store delivery system manages distribution of BodyArmor in 34 states; it’s represented by independent wholesalers in other parts of the U.S. Repole praised the partnership with DPSG as key to BodyArmor’s development.
“Dr Pepper Snapple Group gives us the distribution muscle to compete nationally with Gatorade and Powerade,” Repole said. “This [investment] solidifies their confidence in the brand. We have a great relationship, and I think we have the same vision for what we see in this sports drink category and what we see for the potential of BodyArmor.”
Although Gatorade and Powerade collectively hold a 98 percent share of the sports drink category, BodyArmor is growing fast. Sales of the brand reached $47 million in multi-outlet channels (not including convenience stores) over a 52-week period ending on March 21, according to data provided by IRI, a Chicago-based market research firm. The figure represents a 190 percent increase in sales from a year prior.
BodyArmor sales are even more impressive in the convenience channel and other independent retailers, Repole said. He projects total sales of the brand to reach $150 million by the end of the year.
To support growth, BodyArmor will continue to lean on an impressive roster of professional athlete endorsers, including Andrew Luck, Mike Trout, James Harden, Richard Sherman and Dez Bryant — all of whom are also investors in the brand. Perhaps its best-known athlete partner is Kobe Bryant, who in 2014 acquired an estimated 10 percent of BodyArmor.
The Giannuzzi Group, LLP acted as legal counsel to BodyArmor.
By: Jeffrey Klineman
Premium product. It’s an argument that has worked for craft beer, high-pressure processed juices, vodka, bottled water and RTD teas.
It’s worked for Starbucks over your corner coffee shop, for Cape Cod Potato Chips over Lay’s, and it’s starting to work for Shake Shack as an alternative to McDonald’s as well.
Why can’t it work for sports drinks?
That’s the argument that the renowned BodyArmor team – primarily Fuze founder Lance Collins and Vitaminwater co-founder Mike Repole – has begun making after nearly three years of detours through the back roads of the beverage cooler. Now, the company is urging consumers to use BodyArmor to “Upgrade Your Sports Drink,” according to its new tagline.
“They upgrade all sports equipment,” says Collins. “Uniforms, equipment, sneakers, pads, bats. They upgrade compression shirts, gloves, all that stuff has changed, but sports drinks haven’t. We feel like isotonic consumers have been duped and they’re still drinking antiquated products at every turn.”
In other words, Gatorade (and its long-beleaguered runner up, Powerade) has had its run over the past 40 years. The BodyArmor argument is that there are better ingredients and branding that will appeal to consumers and better (for retailers, anyway) pricing that can be brought to the table.
Hence, after three years of fighting to be called something other than a sports drink, Collins and Repole are redefining their product – as, well, a sports drink, but a premium one. They are betting prodigious sums that athletes will look at BodyArmor as a better, more natural version, more functional version of Gatorade, and pay about $1.99 for a functional indulgence in the same way that a beer lover might trade up to a Sam Adams over a Budweiser or a juice lover might have gone for a Naked O.J. over a Minute Maid.
It’s a shift in strategy that seems to resonate, however late in the game it may have arrived.
“It’s a relevant tagline,” notes Ken Sadowsky, a beverage investor who backed Repole as a Vitaminwater distributor and a director at Glaceau, but did not invest in BodyArmor. “There’s an opportunity for a better sports drink.”
While there are other products that are looking in that direction – Kill Cliff, which has used an internet-based sales model to draw investment from Sherbrooke Capital, for example, while GNC licensed a high-middle-low strategy to Shadow Beverage not long ago – such an opportunity would have been unimaginable about a year ago, when BodyArmor was flailing about for an identity.
Repole says he knows that Gatorade drinkers will be ready to move to a new brand because he was able to attract some of them with Vitaminwater, even as that brand was working in white space.
“The one brand that Vitaminwater got users from while not going after them directly was Gatorade,” he says.
But if Vitaminwater drew from category invention, for BodyArmor, its early years of avoiding the sports drink category will always be questioned. After all, the brand was, at base, an isotonic, albeit one that trumpets its potassium content (largely derived from a 10 percent coconut water base) over the sodium, and one that trumpeted a mix of amino acids, antioxidants, tea, and other ingredients as giving it extra functionality.
Even early on, athletes were considered a key to the marketing mix, particularly after Repole signed on as an investor in early 2012, about nine months after the product’s first road show, during the spring of 2011. But despite the investors’ deep pockets (they’ve expressed a willingness to spend $100 million to make it work) and longstanding relationships with distributors, many of whom they had made rich through their previous enterprises, despite the signing of high profile endorsers – and there were many, including early signups like outfielder Mike Trout and tight end Rob Gronkowski – consumers struggled to make sense of the brand.
“It’s turned several corners,” says Jerry Reda, the COO of Big Geyser, which distributes the product in New York. “Before, it was too complicated. Nobody knew what a ‘super drink’ was.”
Whereas previously the company tried plays suggesting it was for the “everyday athlete” like a stockbroker, now, it’s for the elite athlete, a move it codified by selling a 10 percent stake to basketball star Kobe Bryant.
With the refined message, “It’s the easiest sell in the world against Gatorade,” Reda says. At a gym or an athletic event – or at a presentation to retailers, “all you have to do is tell the guys, do you really want to put all of those chemicals, artificial flavors, that sodium into your body?”
Recently, the brand is starting to move in key wholesale accounts like Big Geyser and others, which have confirmed assertions by Repole and Collins that BodyArmor sales have doubled – or more – over the previous year. According to one IRI reading, the brand had sold $25 million at retail as of May – right before the key summer season for sports drinks.
That might not seem like much when compared with Gatorade’s $5 billion stranglehold on the category, but already BodyArmor is the third best-selling isotonic, and it’s only sold in 25 states. There are 25 more to go, and the brand is now in a position where it has worked out many of its kinks.
And at the start, there were kinks galore.
Early on, Collins’ and Repole’s ballyhooed return to the beverage business was turning into a bally-flop. The brand wasn’t selling, it tasted lousy, and massive amounts of free product were being given away to entice retailers to carry it and consumers to try it.
“If you could make mistakes, they made every one,” says Kevin Watterson, the president of G. Housen, a distributor in Vermont and New Hampshire that was one of the first to take the product. He lists the flaws: the product was way overpriced, coming in at between $2.49 and $2.99 a bottle; the bottle itself had an overwrap that meant the label had to be torn to get it open. The extra ingredients, Watterson said, meant “you had trouble swallowing it.”
In the past two years, several key changes have happened to the product, and to the focus, that seem to have righted the ship: the flavors and SKUs have been rationalized by the removal of extraneous ingredients that were holding back the taste; the bottle itself has been improved – and can now be opened without the assistance of either a pocketknife or a burst of rage, and the price has come down to a suggested $1.99, with 2-for-$3 and 4-for-$5 deep discounts designed to bring consumers on board.
Collins argues that the technical problems, while the source of much snickering within the trade, were the same kinds of developmental speed bumps that are faced by entrepreneurial products that are introduced under a less-powerful microscope than the one the brand’s famous owners attracted.
“When you start a brand, you never know its DNA exactly,” Collins said. “When you launch it, and you put it in retailers, you’re very cognizant of who your customer is through demographics, sampling, and social media, eventually you get an idea of who is drinking your product and who the target is.”
The brand started to turn the corner when Repole came on board, according to Collins. His deep pockets and strategic vision have started to take the lead in terms of the company’s marketing and sales strategy.
“Mike Repole totally opened my eyes as to where we should position it in the store,” Collins said. “I’m doing a lot of the formulas and the innovation, and Mike does sales and marketing and social media and athlete outreach. We have to agree on most stuff, but Michael to me is a marketing genius.”
“I met him when he was 22 years old, and I was his mentor,” he adds. “He’s now become mine.”
After selling off one post-Vitaminwater investment, Pirate’s Booty, and shutting down another one, the restaurant line Energy Kitchen, the ever-pugnacious Repole sounds like he’s energized by finally having a target to take down.
“In the sports drinks category, the number one player has been the same player since 1965,” Repole said. “There’s only two players in the category and nobody has challenged them head-to-head. If I was going to come back in, it was going to have to be for an unbelievable opportunity.”
As with Vitaminwater, many of the brand’s sales are going through channels that might not show up on IRI data, through those up-and-down the street accounts, the small convenience stores and delis that were at the center of the brand’s growth.
That’s the heart of Repole’s strategy for BodyArmor as well. Outside of New York, the brand has avoided most grocery accounts to date to avoid being lined up against deeply discounted Gatorade and PowerAde shelf sets. Instead, it’s shooting for convenience, where a six-SKU shelf can be influential and promotions are for smaller quantities. As it spreads out, it looks to natural sets for grocery – at least initially – and it’s already in the middle of a Costco road show as well.
“We’re picking our spots in convenience now,” Watterson said. “Places that can sell a $1.99 isotonic. And colleges, high schools, and the ‘bull ring’ around them have been our number-one focus for the past eight months.”
The change in category focus by the leadership team started about eight months ago, when Collins filed to trademark the phrase “Upgrade Your Sports Drink.” The brand started focusing on isotonic shelves in convenience, making a youth-focused argument, but one that also included gatekeepers to the family pantry, as well.
Perhaps not coincidentally, shortly after Christmas, the company settled a lawsuit with sports apparel maker Under Armour, a company that has also succeeded by offering consumers a product that sells at a premium to another iconic-but-long-in-the-tooth brand associated with Michael Jordan, Nike.
In March, the brand announced the Bryant investment – one that gave it increased visibility and access to a slightly older generation of players and fans than the ones that will be captured by the rest of its public faces, who include rising stars like James Harden, Richard Sherman, Kevin Love, Buster Posey and Andrew Luck.
“The Peyton Mannings, the Derek Jeters, Gatorade is all they know,” Repole says. “The younger athletes, they not only know more about things like Gatorade and Powerade, they ask questions about what they put in their bodies, whether it’s helping them.”
Standing in the way is one of the great marketing and product successes of the past half-century. Gatorade controls the leagues – it has been the official sports drink of the NBA since 1984, of the NFL, Major League Baseball, the NHL, you name it. It gave Bill Parcells a shower in 1985. It encouraged the world to “Be Like Mike” in 1991.
“Gatorade is the 600 lb. gorilla,” Sadowsky said. “Even if it was outed as not being that good for you, it wouldn’t be outed in the way that people are looking at [CSDs] right now.”
Still, if you’re asking for a way to ‘out’ the old school of isotonic, you couldn’t ask for a better opportunity than the one that was handed to BodyArmor in June, during the NBA finals. Led by Bryant, BodyArmor joined Gatorade in briefly “trolling” cramped superstar LeBron James as he grimaced on the sidelines of the first game, unable to help his Miami Heat teammates avoid a loss.
Gatorade’s social media team had already ridden donuts on Powerade’s lawn in telling the world that “the person cramping wasn’t our client. Our athletes can take the heat.”
But as Gatorade fired away at Powerade – it apologized the next day – BodyArmor’s social media team posted a picture of its own that seemed to depict James drinking a Gatorade. Bryant then put up a picture of BodyArmor on an Instragram social media feed and unleashed a rant:
It was quite a broadside from a brand that had, until recently, spent so much of its existence telling the world – and this magazine – that it wasn’t even a sports drink, no way, it was something called a SuperDrink.
But a strategy has emerged. Of course, BodyArmor has found its focus in the task of trying to take on what is arguably the strongest brand this side of Coke. The opportunity? That the upgrade trend and the healthier ingredient trend have not yet converged on the sports drink category, and with a disciplined guerilla sales effort, their combination just might work to establish a major new brand.
It’s David vs. Goliath, maybe, but David’s got a lot of money in his sling.
“We’ve spent a lot of money,” Collins said. “When we were presenting to distributors and we had $25 million in the pocket, we said we were going to have to raise another $25 million. But Gatorade spends more money on the NFL than we will in three, four, five years – and that’s just one customer. Yeah, we’re spending, but we’ve got to be more nimble, we have to be faster. How do you devour a whale? One bite at a time.”