BCC Research projects the global functional beverage market will reach US$105.5bn (€99.35bn) in value by 2021, with a CAGR of 8.1%, significantly outperforming functional foods, which will only see 7.4% growth in the same period.
Energy drinks will remain the largest component of the sector, with Euromonitor calculating the size of the global market at more than €38bn in 2015. But the research firm sees energy drinks under threat from challengers such as water and tea, as consumers move away from sugary drinks in general.
Opportunities for reduced-sugar energy drinks
One consequence of this is a better outlook for reduced-sugar energy drinks, said Euromonitor senior industry analyst Howard Telford: “Function-first branding in energy beverages may render concerns over artificial ingredients in [reduced-sugar beverages] or other refreshing beverages less relevant or urgent.
“Energy drinks consumers are clearly seeking less sugar, as growth in low-calorie products suggests, but are first and foremost expecting a lab-engineered, high performance beverage that delivers on its core functional claim. All other ingredients take a back seat to caffeine,” he added.
Telford suggested the industry’s aggressive product innovation around reduced-sugar energy drinks helped keep the sector’s growth above regular energy drinks for the past few years.
Water and tea show strong growth
Functional water is also set for strong growth, forecast at 9% CAGR up to 2020 by Euromonitor, from a 2015 market size of US$5.6bn (€5.27bn). Some markets such as Denmark are well ahead of this trend, with functional water growing 17% last year, and making up 6% of all bottled water sales, according to the research firm.
“Volume sales were boosted in 2016 by the growing popularity of Min Vitamin by Hansen & Co, Glacéau VitaminWater from Coca-Cola Tapperierne and Vitamin Well, which saw retail value growth rates of 37%, 22% and 15%, respectively,” a Euromonitor country report on Denmark noted.
Functional tea is set to do even better, with projected global annual growth of 10.3% up to 2020, but starting from a smaller base.
Here, herbal and fruit tea brands have been moving their product offerings towards functionality, to capitalise on the potential health benefits of teas. And more recently some manufacturers have been developing explicitly fortified teas, with added nutrients.
One such produce is UK firm T Plus, which produced four varieties with different functional claims: Boost, Detox, Immunitea and Multea. All four products combine green tea, herbs and fruits, along with nine added water-soluble vitamins.
“We looked at the green, herbal and fruit tea sectors, and felt like each of them had some advantages in terms of antioxidants, or functionality in terms of herbal teas, or taste from fruit teas. But none of them took the benefits of all,” said T Plus founder James Dawson.
T Plus, which launched in 2015 and is now distributed in Holland & Barrett stores across the UK, along with 150 independent outlets, Whole Foods and Ocado, was born out of observing the trend towards functional foods and beverages across the industry – but not in tea at the time.
“We saw a gap in that it was an understood format, it was a convenient product. We saw an opportunity to take some of the fortification and functional benefits and move it into tea. The herbal tea market was already one which played on functionality, but we wanted to take it a step further, with the addition of the vitamins,” said Dawson.
Get smart, no gimmicks
Since then, though, the market has become more crowded, with big brands such as Tetley launching a range of vitamin-fortified green teas.
While Dawson is relatively relaxed about this competition, suggesting that T Plus offers a sufficiently differentiated product, he does express frustration with poorly-considered fortification strategies, such as adding vitamins “just for the sake of it”. He suggested consumers are too well-informed for this to be effective.
“It’s about how people can provide that fortification – through protein, fortification, vitamin D, whatever else – but also provide a holistically healthy product, rather than something that’s a gimmick. With the consumer set we have these days, I don’t see how it will cut the mustard, personally,” he said.
“Brands will have to be a bit more smart in terms of how they target and use functionality,” Dawson added.