QUAKER ENDS GATORADE DIRECT DELIVERY TEST

LISA SAXTON

CHICAGO -- After a year-long test, Quaker Oats here has shut down a statewide system for direct store delivery of its Gatorade products to retailers and institutional outlets in Florida.

The project was an experiment to expand Gatorade's cold channel distribution primarily in outlets such as convenience stores, newsstands, golf courses, health clubs, hospitals and airports, according to Ken Robb, Quaker's director of customer development.

Quaker declined to comment on the effectiveness of the experimental program or on why it was discontinued, but said the decision to do so had nothing to do with Quaker's recent acquisition of Snapple Beverages, which is a successful beverage firm that relies heavily on DSD distribution.

In dropping the Florida DSD system, Quaker discontinued agreements with two DSD distribution partners to move Gatorade and resumed doing business through wholesalers for the sports drink's distribution, using the brokerage company of Bonacker & Leigh, Tampa, Fla.

Southeast Atlantic Corp., Jacksonville, Fla., and Gold Coast Beverage Distributors, Miami, had been the exclusive DSD suppliers of both cold channel products and of Gatorade's 16-ounce bottles during the Florida test.

Sources at these two distributors, as well as Bonacker & Leigh, were unavailable for comment on these events. However, Jim Curley, division president of McLane/Suneast, Kissimmee, Fla. -- a major wholesaler for Gatorade's Florida operations -- said he is happy to have Gatorade back in the fold after a year's absence.

"Part of the test was to try to understand the extent to which we could build Gatorade volume through a DSD system and how that would affect our ability, primarily, to increase points of distribution," explained Robb.

He also emphasized that this move "affects Gatorade only, and is being made totally independent of any existing distribution arrangements on Snapple." Indeed, he said, Southeast Atlantic was the existing Snapple distributor in Florida, and will remain in that capacity.

With the acquisition of Snapple earlier this year, Robb said, "We have two very strong franchises that have been effectively marketed in two completely different go-to-market ways. Gatorade has traditionally built its business through wholesalers. And Snapple has always been a direct store delivery product.

"Naturally, one of the things that Quaker is studying and trying to find the appropriate answers to is: 'How can we integrate these two businesses?' " he said. "How can we capture the strengths that are inherent to each but, at the same time, make this a win-win for the customer, consumer and Quaker?

"And one of the obvious strengths of Snapple has been the ability of its distributor network to get cold channel distribution in what we would call 'up and down the street' points of sale at street vendors, newsstands, hotels, restaurants. It's a distribution channel that is virtually unmatched."

Robb said Quaker now is concentrating on learning from Snapple's experience, as well as examining how Snapple can benefit from Gatorade's strong warm channel distribution in supermarkets.

"These are very successful and strong consumer franchises that were built in quite different ways. So, what we're trying to do, at this point, is figure out a way for integration," said Robb.

It appears that integrating the two businesses in some form may help Quaker compete more effectively down the road. As it stands, Robb said, Quaker "is the only beverage company with a dual go-to-market distribution system.

"Looking at what the competitor does, of course, is of some interest to us because, increasingly, we find we are in more direct competition with beverage companies and therefore different systems of distribution."

Although Gatorade boasts more than an 85% share of the sports drink category, Robb acknowledged it now faces "significant competition from very formidable companies, most of whom are DSD. But that doesn't necessarily mean that we need to be, but we certainly need to understand it."

He also acknowledged the importance of Coca-Cola and Pepsi, two DSD companies that now have their own expanding sports beverage programs. "In fact, Gatorade faces close to 100 competitors, ranging from private labels and products sold in one or two markets, to nationally distributed brands," he said.