The Coca-Cola Co (ticker: KO) is taking a minority ownership stake in sports drink BodyArmor. Analysts say the BodyArmor deal is Coca-Cola’s latest attack on rival PepsiCo (PEP) and its Gatorade subsidiary, which has been eating away at Coca-Cola’s sports drink market share.
Coca-Cola did not disclose the terms of its deal with BodyArmor, but KO is now BodyArmor’s second-largest shareholder. BodyArmor is no stranger to high-profile investments. Former NBA star Kobe Bryant is the company’s third-largest investor.
Coca-Cola’s Powerade sports drink has been losing share to Gatorade in recent quarters. Coca-Cola has also been dealing with a weak overall North American beverage market.
While several Wall Street analysts praised the BodyArmor investment, KO stock investors should keep near-term expectations in check. According to Bank of America, the U.S. sports drink market totaled about $8.4 billion in sales in 2017. Gatorade took a dominant 72 percent of that share followed by Powerade at just 24 percent. BodyArmor currently has just 2.8 percent market share but will certainly get a boost from Coca-Cola’s resources and access to its bottling system.
Bank of America analyst Bryan Spillane says Coca-Cola may simply be giving BodyArmor a trial run before going all-in on the company.
“The deal is structured such that it allows KO to increase its ownership stake in the future under defined terms,” Spillane says.
He says competition in the sports drink category is heating up, and Coca-Cola now has three lines of attack on Gatorade.
“KO will now have Vitamin Water, Powerade and BA to go up against Gatorade with different positioning and usage occasions,” Spillane says.
He says BodyArmor provides a unique marketing opportunity and its premium ingredients differentiate it from both Gatorade and Powerade. BodyArmor contains natural flavors and sweeteners, including pure cane sugar and coconut water concentrate. Coca-Cola will likely leverage these natural ingredients and market Body Armor as a healthier sports drink alternative.
In the meantime, Spillane is…
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