$5.6 billion plus sports drink brand Coca-Cola BodyArmor and Powerade "besieged" Pepsi Gatorade

On November 1, the news that "Coca-Cola will acquire full control of the sports drink brand BodyArmor for $5.6 billion" went viral. In fact, since February, Coca-Cola has begun to plan to acquire all of BodyArmor's market share, which is not only the strong growth potential of the brand, but also the decline in Coca-Cola's own performance and the decline in the market share of the original sports drink brand Powerade are also the main reasons for its heavy increase in BodyArmor. In the eyes of industry insiders, the full inclusion of BodyArmor has given Coca-Cola more leverage against PepsiCo's sports drink brand Gatorade.

Hugely invested in the acquisition of BodyArmor

On November 1, it was announced that Coca-Cola would acquire full control of the sports drink brand BodyArmor for $5.6 billion, a deal valuing BodyArmor at about $8 billion. Coca-Cola already owns a 30 percent stake in BodyArmor and is seeking to buy the remaining 70 percent from the company's founders and investors.

In fact, back in 2018, Coca-Cola acquired a portion of Its Armor, becoming the company's second-largest shareholder, behind its co-founder Mike Repole. Documents in February showed that Coca-Cola planned to acquire the remaining stake in BodyArmor, a deal that is subject to approval by the relevant authorities.

Founded in 2011, BodyArmor is positioned as a new generation of sports drinks that contain electrolytes, coconut water and vitamins, and contain no artificial colors. According to IRI data from U.S. market analysis and business consulting firm, BodyArmor's sales growth rate was as high as 176% in 2016. In 2017, its sales were $235 million, sevenfold in five years. According to relevant data, BodyArmor's revenue in 2020 has exceeded $1 billion.

BodyArmor's ability to achieve continuous growth in just a few years is inseparable from the late star Kobe Bryant. In 2013, Bryant invested more than $6 million to acquire a 10% stake in the company. Before Kobe Bryant joined, BodyArmor had annual sales of only $3 million, and it was only a niche brand in the field of functional drinks. In the first year after Kobe's capital injection, its sales exceeded $36.9 million, an increase of 216.34% over the previous year.

Under Kobe's lead, many well-known athletes from various fields are the spokespersons of the beverage brand. It is reported that BodyArmor's spokesperson lineup is full of stars, NBA stars James Harden, Klay Thompson and Kristaps Porzingis, tennis star Naomi Osaka and others have signed with BodyArmor.

Coca-Cola's deal would be the largest brand acquisition in history if BodyArmor were to be fully acquired, surpassing the $5.1 billion Coca-Cola paid in 2018 to acquire Costa Coffee for its coffee business and the $4.1 billion acquisition of vitamin drink company Graceau in 2007.

Embarrassing performance burden

Since February, it has planned to acquire all of BodyArmor's market share, in addition to the brand's strong growth potential, Coca-Cola's own performance decline and the decline in the market share of the original sports drink brand Powerade are also the main reasons for its heavy increase in BodyArmor.

According to the financial report, Coca-Cola's revenue for the full year of 2020 was $33.014 billion, down 11% year-on-year; net profit was $7.768 billion, down 14% year-on-year. Among them, Coca-Cola water, fortified water and sports drinks fell by 9% and 11% respectively in the fourth quarter and full year of 2020.

Under pressure from performance, Coca-Cola chose to control costs by cutting SKUs and laying off employees. It is reported that 1,300 of Coca-Cola's total 2,000 SKUs have been cut in the two years from 2018 to 2019; in August 2020, Coca-Cola announced that it would provide voluntary separation programs to 4,000 employees in the United States, Canada, Puerto Rico and other places.

After many adjustments, the performance of Coca-Cola has improved in all sectors, but the growth rate of the sports beverage sector is still weak. Coca-Cola's latest third-quarter earnings report showed that its water, sports drinks and coffee shipments increased 6% year-on-year, on par with carbonated beverages, but lagged behind 12% growth in nutrition, juices and dairy products.

In fact, the growth rate of the sports beverage sector is not as good as that of other categories and the slowdown in the development of Powerade. According to Ori Consulting, between 2015 and 2020, BodyArmor's market share increased from 0.5% to 9.3%, while Powerade's market share fell from 18.2% to 13.7%. According to relevant data, the current powerade market share has lagged behind BodyArmor. Goldman Sachs analyst Bonnie Herzog said, "As of October 9, BodyArmor ranked second with 18 percent market share, while Coca-Cola's Powerade accounted for only 13 percent." ”

In this case, the sports drink brand BodyArmor, which has a strong growth momentum, has become a new hope for Coca-Cola's performance. "In recent years, Coca-Cola has been trying to reduce its dependence on carbonated beverages, and sports drinks are currently the core market in the fast-growing core market, and the acquisition of the remaining equity of BodyArmor will help increase Coca-Cola's influence and share in the sports beverage market." Shen Meng, director of Chanson Capital, said.

Against Gatorade

Coca-Cola's move is also considered by the industry to be a benchmark for PepsiCo, competing with PepsiCo's sports drink brand Gatorade through the BodyArmor plus Powerade dual brands.

According to Euromonitor, Coca-Cola's share of the sports drink market is 23% of Thermo and its other sports drink brand, Powerade. Rival PepsiCo's Gatorade remains dominant with a market share of 68%.

In the eyes of industry insiders, even if BodyArmor joins Coca-Cola, its share of the sports beverage market is still only one-third of Pepsi Gatorade, and Gatorade has a strong user base and core event sponsorship resources in the US market, for new brands such as BodyArmor, it is not easy to compete for market share from established beverage companies such as Gatorade.

However, there are also views that although there is still a big gap between the two sides, as a latecomer to the sports drink market, BodyArmor's growth rate is enough to form a certain pressure on Gatorade. Zhu Danpeng, an analyst in the Chinese food industry, said that although Coca-Cola is currently a little smaller than Gatorade in sports drinks, the future prospects for the entire market are still relatively optimistic.

"BodyArmor has investments and brand connections like the late NBA superstar Kobe Bryant, so it has a strong competitive base in the sports drink market. In addition, Coca-Cola's marketing capabilities and resource strength are much higher than PepsiCo's, so Coca-Cola is enough to challenge the share of the sports drink market with The BodyArmor. Shen Meng said.

It is worth mentioning that at present, the top three american sports drinks, Gatorade, Powerade, and BodyArmor are all aiming at the Chinese market. It is reported that the current annual sales scale of Gatorade in the Chinese market has exceeded the 1 billion mark; in April 2019, Powerade was brought into the Chinese market by Coca-Cola, and transliterated as "explosive"; in the same year, BodyArmor was also quietly launched in Coca-Cola's official flagship store, but has now been removed from Coca-Cola's official flagship store.

As for the reasons for the removal of BodyArmor from the official flagship store of Coca-Cola, the relevant person in charge of Coca-Cola only said in an interview with the Beijing Business Daily reporter, "There is no more information at present." ”

In the view of industry insiders, China is currently one of the major sports beverage markets with growth potential, which has important value for the growth of large international beverage companies. In addition, in the past two years, China's sports industry has been rising, especially the Winter Olympics, which will become an opportunity for the development of sports drinks.

Perhaps it is optimistic about the good development prospects of the domestic sports beverage market, foreign brands have entered China, and domestic sports drink brands are also rubbing their fists. In 2019, the Nongfu Spring sports drink brand "screamed" to push the new; the foreign giant Pulse launched a new taste and created a series of new products "Pulse +"; the Jianlibao brand also launched a new sports drink "Love Sports", in 2020, Yibao "magic" was renewed and upgraded... In the eyes of industry insiders, a number of domestic sports drink brands continue to push new layouts, and the competition is more intense.

Beijing Business Daily reporter Guo Xiujuan Wang Xiao