Coach Ray Graves has 25 young, physically fit players all go to the infirmary after practicing on a hot day. He needed to fix that.
Dave Young:
Welcome to the Empire Builders Podcast, teaching business owners the not-so-secret techniques that took famous businesses from mom-and-pop to major brands. Stephen Semple is a marketing consultant, story collector and storyteller. I’m Stephen’s sidekick and business partner Dave Young. Before we get into today’s episode, a word from our sponsor which is, well, it’s us, but we’re highlighting ads we’ve written and produced for our clients, so here’s one of those.
[AirVantage Ad]
Dave Young:
Welcome back to the Empire Builders Podcast. I’m Dave Young, alongside Stephen Semple. And today, Coach, you look like I could use some Gatorade. So Gatorade is the topic?
Stephen Semple:
That is the topic for today is Gatorade. Which it’s now part of PepsiCo, but it didn’t start out that way. It started as a little tiny thing.
Dave Young:
I don’t know a lot about it, but I know that I’m guessing in its early days, it was almost exclusively this sports drink that teams drank. Like football teams would have it on the sideline. And I don’t know if it came in powder that you just mixed into the big cooler that everybody got their drinks out of, I think that’s right.
Stephen Semple:
Yeah, and here’s how exclusive it was. It was developed specifically for a football team.
Dave Young:
Oh, okay.
Stephen Semple:
Yeah.
Dave Young:
The Gators?
Stephen Semple:
The Gators, exactly right.
Dave Young:
Go figure.
Stephen Semple:
So it’s 1965 in Gainesville, Florida, and really our story starts with a football coach and a doctor. And when we look at energy drinks today are a thing, but back then basically all you could get to drink would be either a pop or a glass of water.
Dave Young:
Yeah, yeah.
Stephen Semple:
I even remember when you couldn’t even get bottled water. It was you could get pop. You couldn’t get juice, pop. That was basically …
Dave Young:
But I also remember-
Stephen Semple:
You could barely even find orange juice back then.
Dave Young:
Sure. But I do remember football teams, and just me playing in high school or I was student manager for a while, and there was no energy drink like that. Not an energy drink, Gatorade’s not an energy drink. An electrolyte kind of a drink.
Stephen Semple:
Correct, sports drink. Yeah.
Dave Young:
A sports drink. So you had the little squirt bottles and there were always a bunch of salt pills handy. Players would swallow a salt tablet with their drink to replenish electrolytes, but that was about it and it was just basically table salt.
Stephen Semple:
What we’re going to discover here is even that idea of it being electrolytes wasn’t even known before the mid-’60s.
Dave Young:
Just like I know there’s a lot of salt in my sweat and I seem to have lost a lot of sweat and a lot of salt, so maybe I’ll replace some of that salt. That was all they knew.
Stephen Semple:
Yeah. So basically, here’s where we go. So sports drinks is a huge business today, it’s like a $30 billion business, and Gatorade is by far the market leader with 70% of the market share. And it’s part of Pepsi and for a while it was part of Quaker Oats, and before that it was independent.
So we’re going to go back to Gainesville, Florida in the early 1960s, and we’ve got a football coach and a doctor. Ray Graves is coaching the University of Florida Gators-
Dave Young:
Right.
Stephen Semple:
… and he notices that there’s a problem. There’s a particularly tough practice on a hot day that sends 25 players to the infirmary for exhaustion and dehydration.
And I want to think about this for a moment. This is not old guys like you and me.
Dave Young:
Yeah.
Stephen Semple:
This is young men who are athletes who are in the peak of health.
Dave Young:
Yeah, being overworked by coaches on a hot, humid day, but sure. Yeah, they’re not-
Stephen Semple:
Right. But at the same time, these are young men at the peak of their physical conditioning, 25 of them finding themselves in the infirmary. And initially they were told, “Drink more water. What you need to do is drink more water.” But he knew something was wrong because they were drink more water, but still getting dehydrated and not urinating. And he went, “Something’s not making sense here.”
So Coach Graves approached Robert Cade, who was a scientist at the University of Florida of Medicine and they started running a series of tests. And during the intense workout, they collected the sweat and they analyzed the sweat. So to your point, Dave.
Dave Young:
Yeah.
Stephen Semple:
It turns out that that sweat carried a number of essential minerals. And it turns out, these minerals are the minerals that a kidney needs to do its thing.
Dave Young:
Okay.
Stephen Semple:
So they needed to find a way to replace these minerals. And the other drinks on the market did not work because they were high in fructose, which needs to be processed through the liver. So the fructose, we process through the liver, but what they needed to figure out is stuff to help the kidneys.
Dave Young:
Yeah. And then any kid can tell you that your sweat’s not sweet so you’re not losing sugar.
Stephen Semple:
Right. Well, exactly, because glucose is processed right through the muscles. So there’s all of these things that they started to figure out and they began to run a series of tests through these intense workouts, collecting the sweat and doing this analysis.
So it’s May of 1965 and they create a formulation and test it on the team. And of course, because it’s a test, they don’t use the main team, they use the freshmen team because-
Dave Young:
Well, sure.
Stephen Semple:
… you can expend those guys.
Dave Young:
Yeah, you can always recruit more.
Stephen Semple:
Exactly. Because at that time, the freshmen team was the secondary team.
Dave Young:
Yeah.
Stephen Semple:
And they had this big game against Baton Rouge LSU and Florida was not expected to win, and the game was played in this 102-degree weather and they won. And they went on to have an eight-two season with the reputation of being a fourth quarter team. They had this reputation of being the team that would-
Dave Young:
They could last, yeah.
Stephen Semple:
That could last. And in 1967, they went on and won the Orange Bowl and the players, the players really felt that this drink made the difference and the drink started to then catch on in the athletic community.
But you know what? There were, in the early days, lots of skeptics in the medical community basically saying, “Ah, it’s a placebo effect.”
Dave Young:
Yeah.
Stephen Semple:
And there was some really early challenges when they had formulated it.
Dave Young:
Well, here’s the thing. If it’s the placebo effect, it’s still an effect.
Stephen Semple:
It still is an effect.
Dave Young:
I actually believe in the placebo effect. It works, it’s good and it’s powerful.
Stephen Semple:
It’s really interesting. I wish I could remember this doctor’s name, he did a presentation one time and he was talking a little bit about placebo effects. And somebody was asking him some of his opinions on it and things along that lines, and one of the things that he said that he recommended to any doctor is never talk their patient out of it.
Dave Young:
Yeah. Yeah.
Stephen Semple:
If it’s working, it’s working.
Dave Young:
Yeah, exactly.
Stephen Semple:
But there was a couple of really early challenges. So seemingly, the first formula tasted awful.
Dave Young:
Okay, yeah.
Stephen Semple:
There was people who said it was so bad that it could choke a maggot. Maggot.
Dave Young:
They’re just bottling sweat and feeding it back to you.
Stephen Semple:
Yeah, exactly. And the development got stalled a little bit because of this taste because part of the challenge was how do you change the taste without changing the formulation? Because the typical way you would change taste is you would add fructose to it. Well, that changes formulation. And it was Ray’s wife Mary who had came up with the suggestion of adding lemons. Because it turns out, lemons didn’t change the formulation, but changed the taste. It made it drinkable without impacting formulation.
So Ray at the time approached the university to buy the formulation. He had basically spent $10,000 developing this.
Dave Young:
Wow.
Stephen Semple:
And he said, “Give me 10K, I’ll give you the formulation,” and they refused.
Dave Young:
Stay tuned. We’re going to wrap up this story and tell you how to apply this lesson to your business right after this.
[Using Stories To Sell Ad]
Dave Young:
Let’s pick up our story where we left off, and trust me, you haven’t missed a thing.
Stephen Semple:
Ray at the time approached the university to buy the formulation. He had basically spent $10,000 developing this and he said, “Give me 10K, I’ll give you the formulation,” and they refused. This becomes important later.
So he then approached Stokely Van Camp to bottle and distribute the product, and he forms the Gatorade Trust with the other researchers because he wanted to include them in it. And the name was a mash-up, and it was Gators for Florida Gators and ade. Originally, it was A-I-D.
Dave Young:
Like Kool-Aid.
Stephen Semple:
Aid because … No, like lemonade.
Dave Young:
Oh, like lemonade.
Stephen Semple:
Because it was lemons. Yeah.
Dave Young:
I’m thinking it’s flavored, so it’s Kool-Aid. No.
Stephen Semple:
Yeah.
Dave Young:
It’s lemonade.
Stephen Semple:
Lemonade.
Dave Young:
That makes sense.
Stephen Semple:
Yeah, yeah. And it was first spelled-
Dave Young:
And that’s probably where Kool-Aid got it is lemonade.
Stephen Semple:
Well, maybe. Yeah, yeah.
Dave Young:
That’s a story for another day.
Stephen Semple:
Well, and we did the Kool-Aid story back a long time ago.
Dave Young:
Oh, yeah. Okay.
Stephen Semple:
Yeah. Which was a great story.
Dave Young:
It’s another day, but it was a day in the past.
Stephen Semple:
And people should go back and listen to it, it was a cool story.
So the name was this mash-up, Gators for the Florida Gators and ade because of the lemons because of lemonade. And it was first spelled A-I-D. And the name was changed because there was concerns from the FDA about claims because A-I-D meaning is that this is actually aiding people. And so therefore, it became Gatorade, A-D-E, as in lemonade. So again, they leaned closer to the lemonade end.
And after a bunch of testing, they landed on lemon-lime and they also got orange flavors going. And in July of 1967, the first bottle was sold.
Dave Young:
Okay.
Stephen Semple:
And in the first year, they did $29,000 in sales.
Dave Young:
Okay.
Stephen Semple:
The third year, they did $100,000 in sales. Now, here’s where things they interesting. When they started selling it, the university sued Cade for a cut of the profits and Cade fought them.
Dave Young:
Yeah.
Stephen Semple:
Because he said, “I gave you a chance and you turned it down.”
Now, the case ended up getting settled and today, what the University of Florida gets 20% of the royalties.
Dave Young:
No kidding. Still?
Stephen Semple:
Yeah, still as of today. It can be … They’ve received hundreds of millions of dollars, the university, for their share of the royalties on Gatorade. And in 1983, Gatorade was sold to Quaker Oats for $220 million and then years later, it was sold from Quaker Oats to-
Dave Young:
PepsiCo.
Stephen Semple:
To now, being part of Pepsi.
Here’s the thing that’s interesting is part of the success that happened with Gatorade was a little bit accidental. So one of the things that created the popularity of Gatorade was the Gatorade showers that happen, that you see at the big football games. You know where the players dump-
Dave Young:
Oh, yeah.
Stephen Semple:
… the big cooler of ice?
Dave Young:
Oh, right, they dump the big. Yeah.
Stephen Semple:
Right. So Gatorade always had this idea that what we’re going to do is promote the product through, initially through football because that’s where it had its thing. The whole idea of creating coolers sitting at the side, then expose the products to the players. And you’re right, Gatorade was a powder that was mixed. And in fact, the real Gatorade that’s used at sporting events, you can still get it as a powder that’s mixed. So the type of Gatorade that’s served out at marathons and things like that is a little bit different than the stuff that comes off the shelf.
Dave Young:
Mix it into one of those five-gallon Igloo coolers with the Gatorade logo on it.
Stephen Semple:
Right. Best I could find, no one ever anticipated that it would go beyond this is branding exposure to the athletes. And then suddenly, on national television, somebody dumps a cooler over a coach’s head and that ended up becoming a thing that happens pretty much at every major football game.
Dave Young:
Any time you win a big game, yeah.
Stephen Semple:
Which got them this immediate huge unanticipated publicity.
Dave Young:
Yeah.
Stephen Semple:
That really drove the drink into the sports world.
Now, when Pepsi took it over, Pepsi recognized that they could expand it beyond the sports world and make it a drink that is great for everyone and plug it into their distribution channels and all those other things, and really turned it into something much larger. Much, much larger just because of Pepsi’s existing infrastructure that they could tie into.
Dave Young:
Sure. Yeah, that all makes sense. Gosh, I think F1 players, they don’t … It’s always champagne for them, but that’s a whole different sport.
Stephen Semple:
But that’s a whole different sport.
Dave Young:
Yeah. It’s never a coach.
Stephen Semple:
No, no. F1’s a whole, whole, whole different thing. So Gatorade is kind of interesting because of it just growing out of this coach going, “I’m seeing this problem with these players.”
Dave Young:
Yeah.
Stephen Semple:
And then them developing it. And then it basically becoming big in the football space, and then growing into other sports, and then going mainstream through Pepsi plugging it into their infrastructure.
Look, and the thing that’s interesting, Pepsi’s interesting that way. Pepsi has done this a couple of times, where they found things that have grown to a place, but are niche. And they’ve looked at it and said, “We can make this a lot bigger by plugging this into our existing infrastructure.” And leveraging that.
Dave Young:
Yeah.
Stephen Semple:
Pepsi’s been really good at doing that over the years.
Dave Young:
Like so many of the products we talk about, they saw they had a problem and they invented something to solve a problem.
Stephen Semple:
Yes.
Dave Young:
As opposed to inventing something that’s just like, “Hey, let’s come up with a new drink and market it to athletes.”
Stephen Semple:
Right.
Dave Young:
It was like, “No, let’s come up with a drink that’ll make our athletes feel better.”
Stephen Semple:
Yes.
Dave Young:
And be less susceptible to dehydration.
Stephen Semple:
Yes.
Dave Young:
And then it turns out, other people want it.
Stephen Semple:
It is remarkable that over close to six years that we’ve been doing this, I can’t even … I’m sure there’s probably one, but none of the stories we’ve come across is somebody start off saying, “I’m going to make this this big company.” It’s usually like, “Here’s this problem, I’m going to solve it.”
Dave Young:
Yeah, yeah.
Stephen Semple:
Here’s this problem and I’m going to solve it.
Dave Young:
Sometimes the problem is, “I ain’t got no money,” so you figure out something you can do.
Stephen Semple:
Right, yes.
Dave Young:
And do well and make money from that. But often, it’s some kind of physical challenge or physical problem that we just need a solution for.
Stephen Semple:
Yes.
Dave Young:
So this falls into that. That’s really cool.
Stephen Semple:
Here’s the interesting thing. In the world of AI, that ain’t going to change. Because I have a very, very hard time picturing AI being able to tell us solutions to unsolve problems or even to things that the industry may not see as a problem because it’s almost always somebody always from outside of the industry that’s solving it. It wasn’t somebody from the drink industry that created Gatorade, it was a football coach.
Dave Young:
Yeah.
Stephen Semple:
Because the category of sport drink did not exist.
Dave Young:
Yeah, it wasn’t none of the sports drinks aren’t good enough, it was our guys have dehydration.
Stephen Semple:
Yeah.
Dave Young:
And collapsing on the field.
Stephen Semple:
Yeah.
Dave Young:
What are we going to do? Yeah, yeah. Cool, cool story. I wish I had needed some Gatorade right now. I’m sitting in the air-conditioned studio in my home.
Stephen Semple:
Well, you’re probably going to go for a run later, right, Dave?
Dave Young:
I went for a walk earlier.
Stephen Semple:
Good for you.
Dave Young:
I didn’t drink Gatorade, but I had some electrolytes today.
Stephen Semple:
Okay, awesome. Awesome, awesome, awesome.
Dave Young:
Thanks for bringing us the Gatorade story, Coach.
Stephen Semple:
Alright. Thanks, David.
Dave Young:
Thanks for listening to the podcast. Please share us, subscribe on your favorite podcast app and leave us a big, fat, juicy five-star rating and review at Apple Podcasts. And if you’d like to schedule your own 90-minute Empire Building session, you can do it at empirebuildingprogram.com.
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