A recent BloombergBusiness article examines the rise of boutique electrolyte drinks—an industry that’s emerging as customers look for alternatives to mainstream sports drinks like Gatorade and Powerade. According to the article, pro athletes and the somewhat-less-muscled public are adopting “a new style of liquid electrolytes,” fueling the growth of companies like the Colorado-based Skratch Labs, which creates natural sports drink mixes and provides nutritional support for cyclists in the USA Pro Cycling Challenge.
It’s no wonder upstarts are eager to get a bite out of Gatorade’s market share: the U.S. isotonic drinks market, which includes sports drinks, is still growing at 41 percent. Global analyst firm Beverage Marketing Corporation says sports drink volumes reached 1.4 billion gallons in 2014, up 3 percent from the previous year. Gatorade generates an annual revenue of $3.3 billion.
While Gatorade still dominates (it controls 69.5 percent of the market share in the U.S.), upstarts are on the verge of disrupting the market. Here are three reasons why nimble, smaller companies are well positioned to steal market share from the likes of Gatorade and Powerade.
Customers are becoming more health-conscious
More customers are looking for natural, healthier ingredients in their sports drinks. Millennials, in particular, are ditching sugar and beverages that contain it. With a whooping 13 spoons of sugar in one bottle, the typical sports drink isn’t exactly healthy.
The growing concern for the the nutritional content of sports drinks is exactly what inspired upstarts to create alternatives.
“It’s not just that those drinks have too much sugar,” Allen Lim, founder of Skratch Labs, told BloombergBusiness. “They have excess flavoring, coloring, preservatives, and vitamins—all those molecules contribute to gastrointestinal distress.” Lim says customers like that his company’s products use as little sugar as possible, which is why sales have been growing by more than 100 percent each year.
Alternative workouts and life hacking are becoming more popular
More people are looking outside the traditional gym to improve their fitness. Running 10K races and half and full marathons are all the rage these days. Crossfit and Training Club gyms are popping up across the country, creating new multi-million dollar industries. More people are participating in obstacle training courses like Tough Mudder, Spartan and the Warrior Dash.
The rise of these non-traditional workouts is fueling the competitiveness of today’s customers. You can compete with yourself, and both casual and serious athletes are looking for ways to improve their own personal bests and personal records. To be at their peak performance, people want a sports drink that works.
The emergence of newer sports drinks suggests that not all Gatorade and Powerade customers are satisfied. In fact, when LeBron James experienced cramps during the 2014 NBA Finals after drinking Gatorade, basketball fans were quick to mock the brand on social media. If athletes come across another sports drink that works better for them, they will switch.
At the same time, the DIY culture is seeping its way in fitness and sports. People of all fitness levels are looking for ways to maximize their fitness performance. More people are creating their own sports drinks: home-made concoctions that they believe will help them run faster, lift more weights or beat their records. For example, the beginnings of Skratch Labs is rooted in this DIY culture. Lim says he first started tinkering with sports drink at a friend’s garage in Boulder, Colorado before testing it with pro athletes.
Customers are thirsty for authenticity
Mainstream sports drinks have an image of being created by large multinational corporations who are disconnected from the everyday customer. That image would have been okay a few decades ago, but in an age when transparency is expected from brands, people want to learn more about how the beverages they’re ingesting were made, who made it and why it was made.
Upstarts are not short on compelling stories. It’s one of the reasons people buy from them. “People like the story behind how it was made,” says Luke Rowe, vice president for business development at running-apparel store chain Fleet Feet, about Skratch Labs. (He adds that it also “tastes good” and “it works.”) The story of Skratch Labs’ scrappy start—including its connection to the successful Slipstream Tour de France cycling team—is widely covered in the media.
The growing popularity of alternative electrolyte drinks follows a bigger trend in consumer goods where more upstarts are chipping market share away from established brands. In the new CPG landscape, even brands like Gatorade—a brand that is essentially synonymous with electrolyte drinks—is no longer safe. More than ever, big brands need to engage with customers, particularly active Gen Z and millennials, and learn about their preferences, their changing lifestyle and attitudes. The companies that best understand their customers are most likely to cross the finish line to market dominance first.