Like so Many other categories featured in the aisles of a natural products store, the functional beverage market is booming in some ways and leveling off in others. According to market researcher Mintel, the peak of the category in terms of product introductions occurred in 2008, when 720 new functional beverages were released, up 43 percent from the previous year. In this way, it would seem that the functional beverage category is thriving, but Mintel’s deeper research paints quite a different picture.

The previously exploding market, which was valued at $8.6 billion in 2009, grew just nine percent after accounting for inflation between the years of 2004 and 2009; the projected growth for the years 2009- 2014 is even less at seven percent after inflation. Enhanced waters were hit the hardest, after registering a 267 percent growth between 2004 and 2008, which declined eight percent in 2009. Energy drinks, functional teas, yogurt drinks and smoothies have all “cooled off” or even dropped in popularity.

While the category has expanded with hundreds of new products, it is perhaps this boom that has ultimately hurt it, said Mintel. “The functional beverage category, through new product activity, line extensions and the blurring of segment definitions, has created competition for itself,” the report said.
“Functional beverages also compete with the rest of the beverage aisle on the basis of basic hydration, taste and even health and wellness, as regular fruit juice, tea and bottled water all enjoy positive health perceptions.” But, unfortunately, the challenges don’t end there.

Category Hurdles 

If you ask Terry Harris, CEO of Frontier Beverage Co. (Memphis, TN), maker of Unwind, one of the flaws of the functional beverage category is that it is perceived to be high in both sugar and calories because of a few bad apples. And when health is one of the primary reasons for reaching for a functional beverage, this idea can certainly alienate customers. According to the Mintel survey, “concern over sweeteners has become a considerable drag on the functional beverage category.” Indeed, 70 percent of category users agreed that functional beverages contain too much sugar, and the same number said that they would drink more functional beverages if they contained less sugar. To meet this challenge, Unwind has 40 calories and only 10g of sugar per serving for anyone searching for a relaxation beverage.

Kathy Winniford, co-owner of McMinville, OR-based Parkway Health Foods, said that the store has stopped selling protein drinks, for example, because customers are put off by the ingredient labels. Instead, the store makes its own protein smoothies for people who want them.

“We actually sell a lot of protein powder, rather than drinks, so that people can make their own at home,” she explained. “It’s more appealing for our shoppers to make their own beverages at home when they read some of the ingredient lists out there.” As a result, Parkway Health Foods stocks functional beverages in the most traditional sense: kombucha, apple cider vinegar, coconut water and Essentia Water—products with few ingredients.

“One common misconception facing the functional beverage is that the product must taste bad for it to be healthy,” added Jeff Chandler, senior manager of corporate communications at XanGo, LLC (Lehi, UT).

“We learned early on that one can have the most nutritional product in the market, but if it doesn’t taste, smell and feel good to the palate, no one will buy it,” agreed Franco Romero, CEO of Nurish, LLC (Shakopee, MN). 

Mintel’s study seems to reflect this increasing focus on taste. According to the survey, the sheer volume of beverages that should indicate growth is actually stunting the category—according to Mintel, product selection becomes based almost solely on taste and image, with functional benefits of only secondary importance. “Taste rises to the top among reasons for drinking functional beverages, a reminder that functional beverages compete directly against the rest of the beverage aisle, and if they don’t taste good they likely won’t be purchased again,” the report read.

“There also seems to be a perception that something so rich in nutrition must cost a fortune,” added Romero. Though while he and other manufacturers contend that this so-called misconception is diminishing, as manufacturers aim to produce drinks that are healthy and affordable, Mintel’s research shows that they still have a way to go to convince the public.

Many other categories have held steady during the recession, as consumers prove that they refuse to sacrifice health for supposed savings, but the functional beverage category has suffered because it competes directly with cheaper alternatives, such as water and juice, that are also perceived as healthy by shoppers. “The high cost of functional beverages is also a factor regarding competition with functional foods and dietary supplements,” Mintel’s report said. “Both supplements and functional foods are less expensive than functional beverages. Also, many beverages, especially newage beverages such as enhanced water, promise to provide essential nutrients that a multivitamin can provide much more economically.” Mintel’s study showed that consumers are more likely to purchase a functional food or supplement, as opposed to a functional beverage, which can cost up to five to 10 times more; six in 10 respondents said they would purchase more if the prices were lower.

Retail Reaction 

Retailers who stock functional beverages know that despite the challenges facing the category, they do continue to sell. One way to return the category to positive growth, Mintel reported, was to focus on science, which is one thing this industry has in spades. “In an environment where consumers are becoming both more health conscious and value-driven, there is an opportunity to build sales with new beverages that focus single mindedly on major health and well-being issues, and support their claims with credible clinical research,” the report said. Indeed, the market researcher found that packaging claims have increased in number faster than packages themselves, as marketers have attached more claims to individual products and product lines.

Highlighting the science behind ingredients and products is certainly one way to promote products in an oversaturated market. “The challenge now, however, is to reach the remaining customers and teach them how to differentiate between the products on the market, all of which offer different things,” explained Harris.

Romero offered a few suggestions, all revolving around the need to educate. First, he suggested sampling. Since functional beverages are competing against every other beverage on the market, as the Mintel research found, Romero pointed out that sampling can break down apprehensions about taste and quality of a product.
In Parkway Health Foods’s case, it also features a lunch counter, which enables Winniford to sample out some of the beverages offered in the store to diners. “Passive demos are probably the most popular way to do it,” she said, “and it works for us.” 

Secondly, as Romero explained, what can perhaps be the biggest competition to this category is not a fellow functional beverage, as Mintel would have one believe, but ignorance. “We live in a fast food environment that places too much focus on convenience at the expense of nutritional quality,” he said. “We need customers to realize that their bodies are a microcosm of our planet—pollute it like we are polluting the planet, and see the results you get.” 

Finally, Romero stressed that this new category, which needs explanation in many cases, will succeed by simplifying. “We have made nutrition too complicated,” he said. “Enough of that—go back to the basics of nutrition and you’ll be amazed at the results.” 

“Functional beverages are still in a relative infancy compared to many other categories and forms that consumers are used to,” concluded Dave Ritterbush, COO of Joint Juice (San Francisco, CA). “Given this development, the two most important merchandising tools that can be used are increasing visibility and shopability within the store and creating points of interaction with the store that can help educate consumers about the product and, most importantly, the benefits.”

Looking ahead, functional beverages will compete in the market because of increased delivery capabilities. “The technology is there now to make the delivery systems around functional beverages easier to access and consume,” said Romero. “Some of these technologies have been proven to provide faster absorption of nutrients into the body. Admittedly, these systems are not yet out on the market, but will be shortly, and when they do come out, will revolutionize the nutritional and beverage industries on a global scale.” 

Drink to Your Health! 
Retailers need not wait years to see evidence of evolution in the beverage category. Once a category of general wellness products and protein shakes, the functional beverage market has expanded to include condition- specific products to meet the more personalized needs of shoppers.

“The most significant change I’m seeing in the functional beverage category is the remarkable evolution of highly nutritional and condition- specific products,” said Romero. “The beverage industry is evolving at a rate comparable to the technology arena. We are putting tremendous nutritional and medicinal value into beverages.” 

Nurish’s Greens blend boasts more than 40 superfoods and 51 ingredients represented in the blend, with a phytonutritional and antioxidant value of 25 servings of fruits and vegetables.

Joint Juice offers consumers a line of joint health products in beverage form, including Joint Juice Supplement Drink, Joint Juice Drink Mix and Joint Juice Performance Water. “All Joint Juice products provide 1,500mg glucosamine plus chondroitin, vitamins D3 and C, and green tea extract antioxidants to keep joints healthy,” explained Ritterbush, adding that while there is considerable awareness in the joint health category, there is room to grow for functional beverages in joint health. “Joint Juice’s mission is to make effective and easy-to-take joint heath products.” 

An answer to the ever-popular energy shots, manufacturers are beginning to target functional beverages to relaxation markets. Tranquila Relaxation Shots from Vitila Brands LLC (Melville, NY) claims to provide stress relief and assistance relaxing any time of the day or night. “The relaxation category is still young and has only scratched the surface of its potential,” said Serge Karnegie, the company’s president. 

Also in the relaxation category is Frontier Beverage Co.’s Unwind, which can help users de-stress or even serve as an antidote to the highly caffeinated beverages Americans consume on a daily basis, said Harris.

Finally, while the functional beverage category has been historically saturated with protein drinks, Code Blue (New York, NY) has opened the category to include other sports drinks as well. Code Blue is an all natural, complete recovery drink, according to President and Cofounder Michael Sachs. “Low in sugar and just 40 calories per serving, Code Blue contains three times the electrolytes of the leading sports drink,” he continued. “Its proprietary blend of potent antioxidants includes milk thistle and N-acetyle-cysteine (NAC), which assist in detoxification by helping to combat free radicals that build up in the liver. Other key ingredients include prickly pear extract, used as an antiinflammatory; Sustamine™, an amino acid that promotes muscle hydration and electrolyte replacement; and Dribose to help maintain healthy energy levels in the heart and muscles. The preservative- free formula contains high levels of vitamins B12, B6 and C, as well as potassium.” 

As Sachs explained, brands like Vitaminwater, Muscle Milk and Red Bull may have paved the way in the mainstream for functional beverages, but the natural products industry is stepping in to include healthier options for just about anyone, opening the doors for supplementation for specific conditions and goals. “Consumers can decide which functional beverages fit their lifestyle,” he said. VR