Rebecca Wright07.01.10
Riding a wave swelling with consumer interest and product activity, the functional beverage market has performed superbly over the last several years. In fact, according to Mintel, the market grew 25% between 2004 and 2008. But, as many experts predicted, the market had to peak sometime.
There is a convergence of factors influencing growth, or lack thereof, for functional beverages these days. First, the economy is in the toilet, and since functional beverages are largely discretionary purchases, many consumers are thinking twice about buying them. Second, FDA is really starting to clamp down on the ingredients being used in these products. In addition, the agency is renewing its focus on products that blur the line between supplements and beverages, forcing companies to be more conservative both with their formulations and label claims. And third, no matter what any industry analyst says, the market has reached a point of saturation—no pun intended. There are just too many products out there, and most of them are far from original.
Still, a few pockets of the market are performing well and their prospects for future growth look good. Some of these bright spots include coconut water and shots. Coconut water, a popular beverage outside the U.S., recently hit its stride with Americans, enough to pique the interest of major beverage players such as PepsiCo, Coca-Cola and Dr. Pepper Snapple Group—all of which have forged long-term agreements in the sector within the last year.
The other growth spot in the market has less to do with substance and more to do with delivery. Fueled by the energy shot craze, the shot category is set to move in many other directions, including relaxation-stress relief, immune support and general health and wellness. As one expert enthusiastically put it: “Dumbing down the RTD (ready-to-drink) category into a shot was a brilliant idea!” As with the RTD functional beverage market, there is a lot of opportunity for innovation here. I foresee many SKUs of these “mini RTDs” in the near future.
In contrast to the recent activity in the functional beverage market, herbals performed well beyond expectations last year. According to a report published in HerbalGram, the market grew an impressive 14%—well beyond the low single-digit growth rates seen in the last several years. But times are getting tougher for this market too. As FDA continues to wave its enforcement wand and authorities continue to question safety and quality, the market’s better-than-average performance will probably dwindle here too.
As for functional food formulation, interest and activity is slowing due to economic conditions, although it is still moving along at a respectable pace. Here too companies are taking the conservative route to market as the specter of FDA lingers about. As a result, companies are adjusting their product development plans and launch expectations.
So it’s been a good ride for all of these categories—functional beverages, herbals, functional foods—but it’s far from over. While they may never experience the double-digit growth rates they once had, they still remain well established categories with the benefit of experience on their sides. And in the end, it is the experience that will help these markets survive the rough times ahead.
