• by Karlene Lukovitz  @KLmarketdaily, August 14, 2018

In an effort to break Gatorade’s long dominance of the sports beverage market, The Coca-Cola Company is acquiring a minority stake that will make it the second-largest shareholder in rapidly growing BodyArmour.

PepsiCo-owned Gatorade has about 75% of the $8 billion U.S. sports beverage market, but its domestic sales slipped 0.5% last year, to $5.9 billion, according to Euromonitor International data cited by CNN Money.

Although still a distant third to Coca-Cola’s Powerade (with more than $1 billion in sales), BodyArmour now has a roughly 6% share of the market and is projected to generate more than $400 million in revenue this year.

While specifics of the terms were not disclosed, Coca-Cola’s stake in BodyArmour will now reportedly exceed that of rival Dr Pepper Snapple, which invested in 2015 and 2016 and currently owns about 12.5% of BodyArmour’s shares.

The companies did confirm that the agreement allows Coca-Cola to “increase its ownership stake in the future, under defined terms” — meaning that it could opt to buy the company outright at some point.

The companies also announced that the new deal gives BodyArmour “access to” Coca-Cola’s bottling system for the critical distribution function. BodyArmour is ending its distribution through Dr Pepper Snapple’s network — which was key in driving triple-digit sales increases for BodyArmour in 2016 and 2017 — a source told The Wall Street Journal. It is not yet clear whether Dr Pepper Snapple will retain its BodyArmour holdings.

BodyArmour was founded in 2011 by Lance Collins (also founder of Fuze and NOS Energy Drink) and Mike Repole. Repole was also a founder of Glaceau, the maker of Vitaminwater and Smartwater that was acquired by Coca-Cola in 2007 for $4.1 billion.

All the leading sports-drink brands offer electrolytes for hydration, but BodyArmour — which uses coconut water rather than sugar or high-fructose corn syrup, and contains no artificial colors or flavors — has been making gains by positioning itself as a healthier alternative to the leaders.

In addition, BodyArmour last year launched a Lyte version (also naturally sweetened, with 20 calories and 3 grams of sugar per serving), and this year launched SportWater, a premium version with electrolyte and pH levels “designed by athletes for athletes.”

In response to the growing competition and fitness-oriented consumers’ concerns about sugar and carbs, Gatorade introduced its first sugar-free version, Gatorade Zero, just two months ago

Coca-Cola’s Powerade Zero, launched in 2007, has been a strong performer.

BodyArmour has also benefited from its association with basketball legend Kobe Bryant, who became a major investor in 2013.

Coca-Cola plans to position BodyArmour as a premium sports drink brand to differentiate it from Powerade, Coca-Cola North America President Jim Dinkins told the Journal.