ANALYSIS: Sports drinks step up the pace

Lucozade has begun a burst of activity to tighten its grip on an accelerating sports beverages market, writes Daniel Rogers.

The past few months have seen soft drinks-to-drugs conglomerate GlaxoSmithKline (GSK) up the ante in the sports drink wars.

Having signed England rugby ace Jonny Wilkinson at the beginning of the year to endorse its Lucozade Sport brand (Marketing, January 6), GSK last week announced the establishment of the Lucozade Sport Science Academy (LSSA) to share knowledge about sports nutrition, and has slapped the LSSA logo on its range of products to add authority.

At the same time, GSK has repackaged the Lucozade Sport range, introducing a 'running man' logo developed by design agency Sea Change. A spokesman said the look had been "inspired by classic sports brands such as Nike, Adidas and Oakley". And this week GSK launched yet another brand extension, Hydro Active.

"It's the most active Lucozade Sport has been in the market since we launched in 1991," admits Peter Harding, former GSK Healthcare marketing director and now general manager of its Ireland operation. "But as market leader, we need to drive market growth."

Predictions for growth

Lucozade's burst of activity is partly due to a desire to tap into an adrenaline-fuelled market.

ACNielsen figures show the UK market's value to January 25 grew by 34% year on year to £59m. AC-Nielsen also suggests it is growing three times faster than the broader, better-known energy drinks sector, which includes brands such as Red Bull and Lucozade Energy. Zenith International predicts sales volume is increasing by up to 40% annually.

For this reason, earlier this year GSK created a separate advertising account for Lucozade Sport, handing the advertising element of the expanded £22m annual promotional budget to M&C Saatchi.

The agency's joint chief executive, Nick Hurrell, says his agency has been charged with "adding more muscle" to the Lucozade Sport brand.

The sector's growth shows little sign of abating. Gary Roethenbaugh, Zenith's research and development director, says: "We are predicting at least double-digit growth for the foreseeable future."

The UK is a relatively young market for sports drinks. The first brand was called Dexters and appeared in the mid-80s, with GSK creating a Lucozade sport variant a few years later. The market began to accelerate in the 90s, with Boots selling an own-label product and Novartis introducing its Isostar brand.

But in the past few years this sector has broken into a sprint, moving out of specialist health and sports shops and into garages and newsagents for impulse buys.

"The growth is partly due to the shift toward healthy lifestyles," explains Roethenbaugh. "People are flocking to gyms and running is ever more popular. At the same time there's an increasing awareness of the benefits of hydration and carbohydrates to sporting performance."

And Roethenbaugh believes enticing marketing opportunities contribute to a virtuous circle. "Sports drinks offer marketers a specific consumption occasion. It is easy to tap into consumer demand in this market and some big firms are spending lots of money on promotion, accelerating the market."

The timing of Lucozade's activity can also be explained by GSK's determination to exploit what it views as a closing window of opportunity. While it remains the clear market leader, with about 70% share of the market, GSK is aware of the threat presented by global soft-drinks heavyweights Coca-Cola and Pepsi in this market.

While GSK may be one of the UK's biggest companies, it fears the distribution and marketing might of two of the world's biggest brands.

Gatorade, which Pepsi snapped up in 2000, is the market leader in the US. A Pepsi spokesman confirmed it is "very seriously thinking about marketing Gatorade here".

Rival Coca-Cola, meanwhile, relaunched Powerade in early-2002 with 'Get up, stay up' ads by Wieden & Kennedy. It now claims 22% of the market.

Powerade's sales grew by 170% last year, albeit from a low base. More worrying for Lucozade, it has grabbed 25% of the impulse sector, dominated as it is by Coca-Cola fridges.

Sports brand challengers

Lucozade also faces a challenge from sports brands. The Jordan Formula One team launched energy drink EJ-10 into the UK last year; Reebok has introduced a branded 'fitness water' in the US; and, more recently, British sportswear company Umbro announced it was preparing to diversify into branded confectionery and drinks (Marketing, February 13).

Umbro has licensed a Hypotonic sports drink since early-2000 with limited distribution. Now Umbro brand marketing manager Adrian Cory says he wants to break outside the brand's core audience of 12- to 20-year old football enthusiasts.

"With the right products, Umbro can become a significant player in the soft drinks markets within the next few years," he says.

Finally, Lucozade is up against niche competitors that have built names for themselves through ads and PR in the press serving runners, cyclists and body-builders.

"We are seeing competition from the niche players at the top end of the market," says GSK's Harding, "But Lucozade Sport is moving to the top end now with the academy and our 'need states' products. With our science base, I believe we're better placed than competitors to appeal to both elite and mass-market athletes. If we can get the top end right, everything else will follow."

Arguably Coca-Cola's Powerade is still in need of such an appeal. To build what it calls the 'power to be extraordinary', Powerade has signed England footballer Steven Gerrard and England rugby full back Jason Robinson over the past year.

In the medium term, Roethenbaugh believes the sports drink battleground will be what he calls "enhanced water products" - purified water drinks with added vitamins and/or herbs.

In the US, Coca-Cola has enjoyed success with its Dasani Nutriwater, while Pepsi has backed its version, Aquafina Essentials. These products are more popular among females. "Only a small proportion of athletes really need the added carbohydrates. Low calories will become the issue," says Roethenbaugh. Indeed, this is the thinking behind GSK's Lucozade Sport Hydro Active launch, which will be principally aimed at women.

This is a market that refuses to stand still. Europe's pharmaceutical giants are already busy developing the next generation of sports drinks.

It has emerged that ICI subsidiary Quest International has created a product, Hyprol, that boosts muscle regeneration as well as supplying energy and hydration.

It is being tested by leading British rowers, cyclists and snowboarders, and will be marketed by a host of different firms, including Extreme Drinks and Olympus.

A spokesman for Quest International in the Netherlands says the introduction of Hyprol products into the UK is still under discussion, but insiders believe it is imminent.

Expect more promotional funds to be thrown at sports drinks over the next 12 months. With a growing number of entrants and more money at stake, it will be a case of survival of the fittest - and probably the biggest.

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