Functional beverages can be defined as a drink products that satisfies thirst, is non-alcoholic, is ready to drink and includes in its formulation non-traditional ingredients, such as herbs, vitamins, minerals, amino acids or additional fruit/vegetable raw ingredients, depending on the purpose it is designed for, so as to provide specific health benefits that beyond general nutrition. Sports and performance drinks, energy drinks, ready to drink (RTD) teas, enhanced fruit drinks, soy beverages and enhanced water, among others, are some of the product segments rolled out as functional beverages in the market space.
Functional beverages have become popular due to its appeal to consumers who are seeking specific health benefits in their foods and beverages with it 'healthiness-on-the-go' idea. Both convenience and health have been identified as important factors when consumers make decisions about purchasing foods and beverages. Functional drinks are promoted with benefits such as heart health, improved immunity and digestion, joint health, satiety, and energy-boosting.
Functional beverage sector is a subsector of the functional food and non-alcoholic beverage industry and it is the fastest growing sector. This rapid growth is partially due to the combination of maturity of the carbonated soft drink sector and heavy investments by major food and beverage companies. In 2006, the functional beverage per capita consumption have risen to 66.4 gallons, while the carbonated soft drink sector has a decline in their per capita consumption to 50.4 gallons (192.5 gallons was the average per capita conusmption in 2006). Another reason for this growth is the consumer oriented market scheme in which innovative ideas come from consumers to satisfy consumers. In US, the market share of functional beverages accounted for 48.9% of the 118.3 billion worth non-alcoholic industry in 2008. Industry entrance is mainly driven by the higher growth annual rate of 15% to 20%. This added value is significantly larger than the 2-4% per annum growth rates of general foods and beverages market.
Industry players in functional beverage industry are generally categorized into four types.One, is the traditional non-alcoholic beverage companies including PepsiCoInc, Fuze (beverage) and Coca-Cola Co. Another type consists of major food companies such as Nestlé, Altria Group,Kraft FoodsInc, General MillsInc, Campbell SoupCo. The third group is smaller scaled private companies, like the NOVA Group, Austria and some of which specialize in one subcategory or segment of the functional beverage market like Traditional Medicinals and POM Wonderful.The last group is the growers' cooperative such as Ocean Spray and Sunsweet Growers.
Products of functional beverage industry encompass wide range of varieties targeting different health related concerns. One of the product trends is hybrid drinks with functional and sensory benefits such as thirst quenching ability with daily dosage of vitamins or other nutrients. Another one is probiotics, exemplified by Activia, for gut health and boosting natural defenses or immune system. Memory and mental sharpness is also coming into focus with the Braniac carambola punch drink in the Function Drinks line. Children’s functional drinks also receive much attention in recent years with leading brand Neslie’s Boost (beverage). The current trend of single serve is fueled by consumer's preference in convenience. According to Campbell's director of single serve beverage, "People know they will be seen when they are drinking single-serving beverages, so the package is critical." Weight loss, health and beauty drinks account considerable market share, such as NOVA THEESSENTIALDRINK. Lastly, energy boosting functional beverage products, such as Red Bull and 5-Hour Energy, are rated number one in growth in the functional beverage market.
In this economic downturn, many products belonging the specialty food category are expected to have reduced sales because paying more for those specialty items are not an option for many consumers. These consumers also tend to shop in discount grocery stores and tend to make less grocery trips. Yet, the functional beverage market is predicted to have an increase in growth. This is because people generally reduce restaurant expenses first before they start cutting down grocery expenses. It has also been determined that people become more proactive in illness prevention and control. In the past, people were very reactive in their health because health problems are treated after they arrive. Nowadays, people will take an initiative and look for a food product that will prevent an illness from occurring. Thus, all of the above features prevent the functional beverage market from experiencing lower sales.
Competition in the functional beverage industry are primarily done in four different ways. Companies firstly focus on their own products by clearly distinguishing their health claims from other similar product and specify naturally healthy ingredients.Then, extensions of existing brand lines need to be considered. The addition of Kids Essentials to the Boost (beverage) line by Nestle is a good representation of this strategy. Thirdly, bigger companies compete for market share by Mergers and acquisitions of smaller companies that may own particular market sector. An example of this strategy is the purchasing of Glaceau from Energy Brands by Coca Cola. Lastly, to increase the competitiveness of the company, one may explore new functional brands by identifying new markets and demands.
Market segments of the functional beverage industry are divided mainly by four parts. Those include hydration, energy/rejuvenation, health and wellness and weight management. Each segment has its own target market and consumers. Overlapping of target consumers does occur, not because of undefined market needs, but due to the consumer acceptance towards functional beverages. The dollar sales share on each of these sub-segments are: 28% (Hydration), 8.4% (Energy/Rejuvenation), 62.2% (Health and Wellness), 1.2%(Weight Management).
Currently there is an increasing amount of advertising in the promotion of the importance of hydration. In 2008, Nestle launched the sale of Glowelle, exclusively in Neiman Marcus. Antioxidant vitamins and fruit extracts are among the ingredient list that claims to "hydrate the inner and outer layer of the skin" and protects from free radicals.
Gatorade’s Thirst Quencher offers a wide assortment of flavours that each contain an “excellent source” (25% DV) of B vitamins (B3, B5, B6) to help meet the demands of energy metabolism; an “excellent source” (20% DV) of the antioxidant vitamin E to help protect the active body; an “excellent source” (20% DV) of vitamin C to help active people as they attack their day.In tandem with these adjustments, low-calorie G2 was also reformulated. Now it delivers significant nutrition enhancements by providing an “excellent source” (25% DV) of B vitamins (B3, B5, B6) and a “good source” (10% DV) of vitamins C and E, all of which help meet the nutrient needs of active individuals. Gatorade is well-known for its hydrating qualities of athletes.
Another example of a functional beverage targeting the hydration sector is Hydro One Premium Beverage. It contains vitamins and minerals as well as herbal extracts that are specifically and scientifically formulated to promote healthy hydration, maintain healthy levels of blood glucose, and also provides the nutrients that are beneficial for the circulatory system.Hydro One Premium Beverages delivers a form of sugar which is the most advantageous for the body and aids in the nutritional needs of people while hydrating them in a healthy way. Two to four bottles are recommended each day.
There is an increase in the presence of energy beverages by Red Bull, Adrenaline Rush, 180 and many others. These highly-caffeinated, high-energy drinks have exploded on the beverage market in the United States, as well as globally and generated a whole new generation of copycat caloric or – in many cases – sweetened beverages.
According to the different brands of energy drinks, ingredients that serve as stimulants include: taurine, glucoronolactone, caffeine, and B vitamins , guarana, ginseng, ginkgo biloba, L-carnitine, sugars, antioxidants, yerba mate, creatine, milk thistle. Although these ingredients have been approved by the FDA, health experts still recommend consumers to read the label to make wiser choice of beverage since these ingredients may not be beneficial for health.
Functional beverage companies are more aware of the ‘health conscious’ individuals and have introduced functional beverages with less sugar and therefore less calories. For example, Vitaminwater 10 contains only 10 calories per serving (25 calories for a 351mL bottle, 7.5 grams of sugar and 250% of daily allowance of Vitamin C) On the other hand, it has the same 25% of the daily allowance of Vitamins B3, B5, B6 & B12 as the original. Vitaminwater 10 has an all natural sweetener extracted from the stevia plant , which is a benefit in lowering calorie content as well as naming the product as natural.
With increased worries about obesity and its implications on health, combined with demand for convenience goods, consumers are naturally looking towards easy weight loss methods that they can easily integrate into their lifestyles.As such, functional beverages are striving to achieve that through addition of ingredients that promote weight loss.
Coca Cola and Nestlé have partnered to produce Enviga, one of the new ‘calorie-burning beverages’. Skinny Water (owned by Skinny Nutritional Corp.) and Nutrisoda's Slenderized (owned by PepsiCo) have both used included polyphenol called epigallocatechin gallate (EGCG) in their ingredient for their "metabolize boosting effect". With the increase in demand, ingredient manufaturer are now offering a 95% EGCG content product, a tea extract called "Blue California".
The consumer group is characterized as well educated, females, ages 35-55 years of age belonging to upper middle, middle, and lower middle classes ( ABC1 social class groupings). This is due to their perceptions towards positive health beliefs, as well as a high disposable income. Within the energy and stimulant drink sector, young adults aged 18 to 34 are considered to be the main target market, which can be seen by the high consumption rates. However, there could be potential downsides when companies rely too heavily on trends due to constant attitudinal differences of functional beverages across categories.. Therefore, there are significant challenges presented to companies that want to pursue opportunities pertaining to functional beverages.
Target market consumers can be further segmented into four groupings: a functionality-driven segment; a price-sensitive segment; a natural-driven segment; and a grouping of carrier attribute-driven segments. Functionality-Driven Segment: offers the greatest potential for functional beverages as it is least willing to make trade-offs between functionality and other intrinsic and extrinsic product design attributes, in order to obtain or achieve the desired benefits. Price-Sensitive Segment: most willing to make trade-offs between functionality, carrier specific attributes and price. Natural-Driven Segment: does not perceive value from added functional ingredients. This segment represents those consumers that consider functional products less natural than conventional products, and instead, value wholesome foods and beverages. Carrier Attribute-driven Segments: consumers that desire products associated with the maintenance of health and well-being, and therefore represents potential target markets for functional products. However, they are less willing or are unwilling to compromise on carrier-specific related attributes such as flavor, texture or convenience for reputed functional benefits.
Companies must also identify consumer’s rising needs as well as respond quickly to consumer’s enquiries to functional beverages. This will help companies to recognize underdeveloped market niche and be able to create new opportunities based on other competitor’s mistake. Therefore, benefit segmentation (allowing the consumer to benefit from seeking or deriving from specific functional beverages) will identify and target viable consumers..
Health experts are concerned about the ready consumption of the rising functional beverage. As much as these beverages essentially still serve to hydrate the individual, it may not lessen or even address major health issues today such as obesity, heart disease, and cancer that are associated with the consumption of sweetened beverages, of which, most of these beverages are. This is because most of these drinks contain significant amounts of sugars and hence calories, which would add to discretionary and total caloric intake. As such, these ingredients pose health risks because of what they contain (sugar and caffeine) or what they replace in the diet (vitamin and mineral rich foods).
Another aspect for concern is that some functional beverages contain ingredients that have not been sufficiently studied for health benefits, safety, and dosage or have higher levels of a certain ingredient, like caffeine, heart disease, and cancer that are associated with the consumption of sweetened beverages, of which, most of these beverages are. Thus, consumption of these beverages might lead to undesired outcomes due to unforeseen interactions.
A 20oz bottle of Glacéau’s Vitaminwater has been reported to contain approximately 33g of sugar, which is similar to the sugar content of a can of coke. As such, such products may not be as a healthy alternative to other commonly consumed beverages. In addition, the sugar content of such beverages promote dental caries amongst frequent consumers.
In some particular functional drinks, particularly energy drinks , the caffeine content can be high, ranging from 0mg to 141.1mg/serving, of which an average 8oz cup of coffee contains about 133mg of caffeine. There have been reports to Health Canada of adverse reactions involving energy drinks.
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