PepsiCo's (
PEP
) Gatorade, a sports drink brand targeted at young students and
teenagers, has seen a decline its market share by one percentage
point from 2005 to 2009 due to stiff competition from brands like
Kraft's
(
KFT
) Kool Aid and
Coca-Cola's
(
KO
) Powerade as well as a fall in consumer spending during the
economic downturn that caused customers to seek cheaper
substitutes.
Gatorade competes in the wider US fruit juices, sports drinks
and energy drinks market against players like Coca Cola, Kraft
Foods, Dr Pepper Snapple (
DPS
) and National Beverage (
FIZZ
).
PepsiCo's Gatorade & Other product segment constitutes
around 17% of its stock value based on our estimates. Hence,
despite the Trefis community's projected upside to our base market
share estimate, the upside to PepsiCo's stock value is limited. The
Trefis community expects Gatorade's market share to reach 18% (vs.
our 15% estimate) by the end of our forecast period.
We currently have a
Trefis price estimate of $67.28 for PepsiCo's
stock
, roughly in line with market price.
Newer Products Expected to Strengthen Gatorade Brand…
The Gatorade brand is well-known to consumers. It was
instrumental in starting the sports drinks segment in the US and
still owns a majority of the market. In 2010, Gatorade announced a
marketing campaign promoting its products under "G Series," a three
part regimen designed to fuel every step of its consumers' athletic
performance.
As part of the campaign for G Series Fit, Gatorade is targeting
a broad distribution network of large convenience and grocery
stores and is also adjusting the bottle size of the G Series Fit
energy drink to cater towards its target demographic. (Refer to our
article: PepsiCo's Gatorade Could Grow Market Share with G Series
Fit)
…But Competition from Substitutes a Concern
Kraft Foods's Kool Aid and Coca-Cola's Powerade are Gatorade's
strongest competitors in the sports and energy drinks market.
However, PepsiCo now faces competition from a growing number of
substitutes. These substitutes are concocted with easily available
ingredients and threaten to neutralize Gatorade's unique
positioning in the market. One such example is switchel, a drink
made with water, molasses and honey/ginger which promises to
replicate many of Gatorade's functionalities.
Trefis Community Forecast
The Trefis community expects Gatorade's US market share to
breach 18% by the end of our forecast period, vs. our base case
estimates of flat market share around 15%. While the Trefis
community estimate implies significant upside for the Gatorade
brand, the ultimate impact on PepsiCo's stock value is limited, as
Gatorade only contributes an estimated 17% to total company
value.
Our
complete analysis for PepsiCo's stock is here
.