Beverage giant buys stake in BodyArmor, an athlete-backed
sports-drink startup
By Jennifer Maloney and Cara Lombardo
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (August 15, 2018).
Coca-Cola Co. is buying a stake in BodyArmor, the sports drink
startup backed by Kobe Bryant and other athletes, marking the
latest attempt by the beverage giant to break Gatorade's lock on
the sports market.
In addition to taking a minority stake, Coca-Cola's bottling
system could soon begin distributing BodyArmor's drinks, executives
said. The deal would also allow Coke to later take full ownership
of the upstart, they added. Financial terms couldn't be
learned.
BodyArmor has sought to challenge Gatorade, which is owned by
PepsiCo Inc., and Coca-Cola's Powerade. BodyArmor has marketed its
products as healthier alternatives and enlisted younger athletes,
like Los Angeles Angels outfielder Mike Trout and Houston Rockets
guard James Harden, to invest and appear in its ads.
Gatorade still dominates the market, capturing about
three-quarters of the $8 billion in U.S. sports drinks sales, but
its sales have declined in recent quarters. BodyArmor has grown
quickly in the last year but is still a distant third, behind
Powerade, with less than 6% of the market, according to a Wells
Fargo analysis of Nielsen data.
Like Gatorade and Powerade, BodyArmor is rich in electrolytes to
help with hydration. But BodyArmor, which uses coconut water, is
lower in sodium and higher in potassium and is marketed as more
natural than rivals. It doesn't use artificial colors like Gatorade
or high-fructose corn syrup as a sweetener like Powerade.
BodyArmor is expected to have about $400 million in revenue this
year and, based on recent deals in the beverage industry, could be
valued between $1 billion and $2 billion.
Under the deal, Coca-Cola would become BodyArmor's
second-largest shareholder, eclipsing a stake held by soda rival
Keurig Dr Pepper Inc., which also has a distribution deal.
BodyArmor has informed Keurig Dr Pepper that it plans to
terminate the current distribution agreement, according to a person
familiar with the matter. A Keurig spokeswoman declined to say
whether the company plans to keep its stake in BodyArmor.
The amount Coca-Cola would ultimately pay for full ownership of
BodyArmor would depend on sales and other performance measures, Jim
Dinkins, president of Coca-Cola North America, said in an
interview.
He said Coke will position BodyArmor as a premium drink above
Powerade.
BodyArmor, which is based in Queens, N.Y., was launched in 2011.
Its co-founder, chairman and principal investor, Mike Repole, also
helped create Glaceau, the maker of vitaminwater and smartwater and
a business that Coke acquired in 2007 for $4.1 billion. In 2013,
Mr. Bryant became a top BodyArmor investor and joined the
board.
Mr. Repole said the new Coke deal sets the groundwork for
distributing BodyArmor internationally, including in China, which
would ramp up his challenge to the market leader.
"To me, Gatorade is Blockbuster Video, and BodyArmor is
Netflix," he said in an interview. "If you don't evolve, you're not
going to be around much longer."
BodyArmor was valued at less than $200 million when Dr Pepper
Snapple Group amassed a 15.5% stake in 2015 and 2016, but that
stake has since fallen to about 12.5%.
The sports drink category has been under pressure, as consumers
spend more on enhanced bottled waters, teas and energy drinks.
Gatorade has responded by adding G Organic and low-calorie G2
versions, though the products haven't been big sellers. In June,
PepsiCo started selling a sugar-free version called Gatorade
Zero.
"Gatorade always attracts new players into the marketplace and
they come in with either lower prices, or they try to come in and
build distribution," PepsiCo's outgoing CEO Indra Nooyi said last
month. "If you look at it over a period of five or seven years, the
Gatorade franchise has been extremely resilient."
For decades, Coca-Cola has failed to dent Gatorade's dominance
with Powerade or organic sports drinks introduced under its Honest
brand. Under a new CEO, Coke has been looking to diversify beyond
sugary sodas.
Mr. Dinkins, the president of Coca-Cola North America, said
BodyArmor makes an alkaline water for athletes in addition to its
sports drinks, allowing Coke to broaden its reach across both
categories.
"There are trends, clearly, in the health and wellness space,"
he said.
Write to Jennifer Maloney at jennifer.maloney@wsj.com and Cara
Lombardo at cara.lombardo@wsj.com
(END) Dow Jones Newswires
August 15, 2018 02:47 ET (06:47 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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