‘We...hope to roll it out more broadly,” Gatorade Says.
Move Would Match Coke-Owned Powerade, BodyArmor.
Plus, Gatorade Phases Out 32-oz Bottle.
PepsiCo is considering shifting Gatorade to direct store delivery (DSD) for large format stores in the US following successful market tests, the company has confirmed to BD. “We’ve done some tests,” CFO Hugh Johnston said in an interview. “The tests have been pretty successful.” He added that a decision about whether to go wider and when “is still to be made.” Such a shift is likely to include PepsiCo’s company-owned carbonated
soft drink DSD bottler, PBC, as well as independent bottlers. PBC handles more than 75%
of PepsiCo’s bottle and can CSD volume in the US. Gatorade distribution for large format stores is currently handled through warehouse direct delivery, which may account for half of the brand’s US volume, according to a source. Warehouse delivery relies on bulk shipments of products to retailers, whose employees handle last-mile delivery and shelving. With DSD, products are generally delivered by a manufacturer directly to the store daily, or as needed, by a merchandiser who places the product on the shelf and monitors compliance with brand display standards and pricing strategy. Ten years ago, PepsiCo shifted Gatorade to DSD in small stores, including the convenience and dollar channels. At the time, PepsiCo credited the change with a lift in volume sales. Competitors Powerade and BodyArmor both use DSD for small and large format stores. According to BD sources, tests by Gatorade during the past year-and-a-half showed that the brand benefitted from DSD in large stores. “The biggest thing we’d be looking to do is grow our own business and to provide better service for our customers,” Johnston said of the rationale for a shift to DSD.
GATORADE RESPONSE. When asked about the timing of a shift to DSD for large format stores, a Gatorade spokesperson sent the following statement: “As part of our mission to fuel all athletes, ensuring they have the best access possible to our products is a priority. We can confirm we’ve run a successful DSD test in a few select markets across the country and hope to roll it out more broadly in the future. But out of respect for ongoing and future discussions with our bottling system and customers we have nothing more to share at this time.”
RETAILERS. Discussions with retailers including Walmart and Kroger are underway, one of the sources said. While declining to discuss any specific customer, Johnston did say that a key question centers on the margin impact of a shift from warehouse delivery to DSD, given that PepsiCo and its bottling system would take on last-mile delivery, merchandising, and other costs from large format retailers for Gatorade. “That’s something that will need to get sorted out if we were to go forward with it,” he said. “And it’s not an insignificant thing. That could be the ultimate decision variable. We’re taking on more of the supply chain responsibility, which costs real money.”
INDEPENDENT BOTTLERS. The timing of any Gatorade transition to large format retail by way of independent Pepsi bottlers would be heavily dependent on negotiations over the division of profit from those sales, the sources said. In addition, independent bottlers would need to rework warehouse space and racking systems to accommodate the change, as would PBC. BD notes that PepsiCo may also seek additional agreements or commitments from independent bottlers who want Gatorade in large format. The outcome of those independent bottler negotiations in some regions could influence how easily PepsiCo can shift national accounts to DSD for Gatorade.
32-OZ BOTTLE DISCONTINUED. The possible transition to DSD comes as Gatorade loses market share to smaller players such as BodyArmor (now owned by Coca-Cola) and works to increase production capacity amid widespread out-of-stocks since the pandemic began. In addition, Gatorade is phasing out the 32-oz plastic bottle, used heavily in the grocery channel, in favor of a 28-oz bottle used in other channels. Powerade made a similar move in early 2020, prior to the Covid-19 pandemic sweeping the US. Shifting to DSD should allow PepsiCo to better keep Gatorade stocked on store shelves at major retailers such as Walmart and Kroger at a time when those chains struggle to get product from backroom storage onto store shelves because of Covid-fueled worker shortages.
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