Functional Beverages: Market Evolution

Tom Leveen
11/20/2007

Was it really that long ago when consumers didn’t face an entire aisle full of beverages promising so much more than just thirst quenching? What started with the launch of drinks designed to help athletes with fluid and electrolyte replacement expanded into energy boosters and beyond. Dr. Paul Ling Tai, Acaizone, noted today’s market is, almost literally, flooded with functional drinks designed to do everything from managing appetite to reducing wrinkles. Continued demand from health-conscious, active consumers means sales of functional beverages are only going to rise, forcing formulators to push the envelope for new opportunities.

“There are two primary drivers in the functional beverage market,” said David Karr, co-founder of Guayaki Yerba Mate. “One, an explosion of consumer knowledge and interest in health and nutrition that has people reading labels. And two, convenient options to enhance on-the-go lifestyles. Many people are demonstrating they would rather gain a boost of nutrition from a delicious drink instead of a pill or supplement.”

Geni Bean, eastern division marketing manager for FUZE Beverages, agreed: “Health conscious consumers are looking for a nutritious alternative to soft drinks, plain water and other sugary drinks on the market.” And Dan Ratner, founder of Cellnique, added, “Like coffee and alcohol drinks, people want functional benefits. They want fast absorption and something to grab-and-go.”

The math is easy, according to Nailah Gaston of Naked Juice. “The primary driver of the functional beverage category is the correlation between what consumers eat and drink and how their body feels,” she said. “Many consumers have very active lifestyles and it is essential that functional foods offer a convenient, nutritious way to meet their dietary demands.”

Hot Ingredients

While it has been a number of years since antioxidants first made headlines, they haven’t lost their consumer allure. “Antioxidants are still a major buzz word, as consumers are learning more about the benefits of consuming foods that defend the body against free radicals, such as pomegranate and açaí,” Gaston said. “Probiotics are also hit ting the mainstream, because they offer a variety of immune boosting health benefits from the inside out.”

Jim Saunders, Meditech International, also cited antioxidant-rich fruits. “The primary drivers are the superfruits— açaí, goji, mangosteen, pomegranate and noni. Along with the superfruits, we are focusing on fortifying and truly creating a science-based functional beverage that can be labeled with structure function claims.”

Açaí has been making a splash across the industry. Eric Schnell from Steaz listed açaí, mate, guarana and green tea as in demand from consumers. Ingredient sourcing is also a factor. “If these ingredients are organic or Fair Trade sourced, they even have more perceived function to today’s consumer,” he said.

Karr pointed to organic ingredients being a major marketing pull. “Organic drinks are taking off because people are more health-minded than ever and are increasingly concerned about artificial ingredients that once dominated the drink scene,” he said.

Increasingly, companies are finding consumers are as interested in the “history” of the ingredient and packaging of the drink as they are the ingredient itself. “Consumers in the North America marketplace are more interested than ever in the story behind the drink, and organic companies usually have an interesting, socially responsible story to tell and that is boosting sales,” Karr said. “For example, our customers appreciate the fact that their purchases help support rainforest protection and reforestation efforts.”

The idea of social and environmental responsibility has even imp acted packaging of functional beverages. Frutzzo said eco-friendly packaging and manufacturing practices are becoming as important to drink makers as the supply selection process—a trend more companies are hip to.

Beyond just selecting ingredients with buzz, marketers are seeking the ones with solid health benefits. Bean noted, “For our FUZE Tea line, we use real tea solids and an abundant amount of polyphenols to help filter out free radicals in the body.”

Albert Cahana, co-founder of Herbal Water, turned to culinary herbs to supply health benefits in his line. “Herbs are natural functional foods, as they provide benefits beyond basic nutrition,” he said. “Culinary herbs contain natural substances that play a role in cardiovascular health, metabolic health, combating inflammation, healthy aging and cancer prevention. They contain high concentrations of phenolic substances and antioxidants; some have 1,000 times more than other vegetables. Plants are virtuosos of biochemical invention, and herbs contain many molecules that act together to benefit human health.”

Dr. Tai referenced HBS (Health Benefit Specific) functional drinks as the next generation of functional beverages that also include antioxidants. He said he’s seeing a “flood of antioxidant and superfruit juices adding more benefits for joint and inflammatory pain left by the absence of anti-inflammatory and arthritis prescription drugs withdrawn from the market due to unacceptable side effects.”

Formulation Challenges

As with all functional products, formulation is critical. “The main challenge in creating a functional beverage product is that the ingredients can be fairly costly,” Frutuzzo’s spokesman stated. Ratner said challenges included ingredients and beverages that must be organic, but shelf-stable; use of hot fill; being aware of high acid; and “making everything taste good without using sugar.”

Lynn Yako, vice president of marketing for LightFull Foods, agreed that getting beverages to taste good despite their functional ingredients was an issue when developing their satiety-focused products. “Delivering a meaningful amount of fiber and protein in a smoothie that tastes great and is under 100 calories is no small task,” she said. “Too much fiber, and you get grittiness. Too little and you lose satiety. Also, Americans are known for their sweet tooth, so keeping something low calorie, all natural—we refused to use any artificial sweeteners—and great tasting was also a big challenge.”

Tai added stabilizing the ingredients to deliver the antioxidant benefits was a major challenge in developing the Acaizone product line. “This required using new micro-encapsulation technology to protect the antioxidants, keeping them fresh while on the shelf,” he said.. “Another challenge was evaluating and enhancing the microabsorption of the nutrients and active transport of the gut.”

Hot Sales Tricks

In an increasingly crowded marketplace, the challenges of formulation and ingredient sourcing are augmented by marketing obstacles. With so many avenues to pursue, how can a retailer cut through the clutter?

The number one suggestion from marketers is to let consumers taste the options. “In-store demos are a valuable tool for retailers to assist customers,” Karr said. “Direct interaction with customers is paramount and we try to instill this direct marketing excitement with the retailers we partner with. People gain valuable info about function and ingredients, and experience the organic flavor, then feel the effects from the sampling and continue to purchase the beverages.”

Gaston recommended retailers capitalize on consumer trends and time-of-the-year special s when certain ingredients/benefits are top of mind. “For example, the winter season is notorious for colds and chills but consumers want to stay both healthy and remain active,” she said, so Naked Juice focuses on the cold-fighting aspects of their juices during that time of year.

Retailers should also consider holding demos near the cooler cases, so grab-and-go is an option. “Because beverages sell more when they are cold, one cooler in general is not sufficient for all the options today,” Karr added. “Plus, beverages are a hot selling category, so retailers should be keen to keep them cold and ready for consumption in convenient and visible grab-and-go locations.”

Education also plays a critical component. “There is so much interest in functional foods, retailers have a real opportunity to connect with their consumers,” Yako advised. “Connect by providing forums for education and learning about the benefits of each of the foods, and how to discern quality ingredients.” Saunders further suggested extending the education by providing charts or shelf-talkers. “Not many people know about ORAC and what exactly antioxidants are,” she said. “I am beginning to see more products explaining these health benefits. More education and in-store leaflets would be helpful.”

At the end of the day it takes a combination of excellent quality, vital health benefits and delicious taste to capture shoppers. Consumer demand for functional beverages will continue to drive innovation and the search for superior ingredients, coupled with a quest for new formulation technologies that deliver great taste.

Tom Leveen is a Phoenix-based freelance writer and former associate editor for Natural Products Marketplace.

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