PepsiCo (NYSE:PEP), the owner of Gatorade, is aiming to diversify the brand beyond beverages. The iconic drink, which dominates the $7 billion U.S. sports drink industry is hoping to replicate its success in the $20 billion U.S. sports nutrition industry.  The sports nutrition industry consists of sports drinks, protein bars and supplements, among other products. Currently, PepsiCo competes with the likes of Coca-Cola (NYSE: KO) and Dr. Pepper Snapple Group (NYSE:DPS).
We maintain a price estimate of $71, which is about 10% above the current market price.
Revamping the Brand
The brand’s logo was changed to a simple “G” back in 2009 in order to appeal to a whole new generation and have a logo that could be used on a wide range of products. Since then, Gatorade products have also been available at retailers outside of convenience and grocery stores, such as Dick’s Sporting goods, GNC vitamin shops and other specialty sports store. The aim is to create a brand that athletes can associate with.
PepsiCo is currently testing new products using star athletes like NBA’s Dwayne Wade. In fact, it’s working with Wade to customize a whole new nutrition program for him to deal with the physically demanding nature of the game.  Athletes like Wade are crucial as they provide a marketing push to the new products during launch and better performance from the athletes help in improving brand image for the company’s products.
We believe that Gatorade contributes to 16% of the stock price. The move could have a significant upside if Gatorade is indeed able to innovate and market its new line of products successfully.Notes:
- Gatorade Goes Back to the Lab, MSNBC, November 29, 2011 [↩]
- Pepsi, Gatorade Want to Dominate $20B Sports Nutrition Market, Investor Place, November 28, 2011 [↩]