Japan has led the way in functional drinks and as market maturity and demographics have slowed sales, manufacturers have continued to innovate imaginatively. Jeanette Bengtsson, soft drinks manager at Euromonitor International, expects that Japanese innovation will continue to influence functional drinks markets in other countries.

The functional drinks sector has been one of the most dynamic areas of the soft drinks market globally in recent years but nowhere has the boom been more dramatic or sustained than in Japan. And with the global growth in functional drinks volumes set to continue to drive growth in the global soft drinks market over the coming five years, Euromonitor International expects Japan to continue to be a major source of innovation within the category.

Among the attributes that mark Japan out as a sophisticated functional drinks market is the fact that it was the first country to have a fully-regulated system for classifying health claim-bearing functional foods known as FOSHU (Foods for Specified Health Use). Launched by the Ministry of Health, Labour and Welfare in 1991, branded products containing oligosaccharides, fibres, soy proteins and other functional ingredients are individually approved to carry various health claims, such as lowering cholesterol, improving gastrointestinal health, reducing body fat or lowering the risk of dental cavities. While this is a voluntary certification, approved FOSHU products hold considerable consumer appeal.

However, functional drinks is a mature market in Japan, underlining the need for continuous innovation and advanced product development. Volumes of sports and energy drinks peaked in 2004 and Euromonitor expects volumes to fall by 1% annually between 2005 and 2010. And while bottled water is forecast to be one of the most vibrant sectors between 2005 and 2010, volume sales of functional bottled water will continue to fall.

Although Japan has the highest per capita annual consumption of functional bottled water in the world, at 6 litres, with sales growing strongly over the past few years on the back of the amino acid craze, as more manufacturers have introduced amino acid-based beverages, consumers have showed signs of fatigue with the overwhelming array of products available. 

As a result, manufacturers are now developing products using new functional ingredients that have more specific benefits, including several beauty-related water products targeted at female consumers. Currently popular ingredients for these 'beauty waters' include coenzyme Q 10, l-carnitine (an amino acid derivative with energy-boosting and fat-burning properties) and ceramide. Key product launches include Coca-Cola Coenzyme Q10 and Dydo Drinco's Supplement Water CoQ10, both marketed as health and beauty drinks.

Other developments include Coca-Cola's launch of Body Style Water earlier this year in a joint venture with Shieseido, a company known for its work in the aromas field. Shieseido's aroma theory suggests fragrances from plants, such as grapefruit or peppers, can increase the generation of uncoupling proteins that burn neutral fat. In May 2006, Kao Corp. launched Healthya Water, the first FOSHU-approved sports water in the body fat category due to its high tea catechin content.

Also relatively new to the functional bottled waters market are vinegar waters. Vinegar-drinking is common in Japan, where it is widely accepted to fight fatigue, prevent hypertension, improve skin and promote weight loss. Unlike the very strong and unpalatable traditional drinking vinegars, vinegar waters contain approximately 1% vinegar and provide the health benefits of drinking vinegar in a convenient format. Euromonitor International expects these products to go some way in reinvigorating the market for functional bottled water.

Alongside FOSHU and functional bottled water products, traditional functional drinks are also well established in Japan which is a leader in sports drinks technology as shown by the popularity of sports drinks containing amino acids. Innovative launches over the last couple of years include Asahi's Super H2O and Kirin's Gekiryuu which both contain lower osmotic pressure than body fluids so that the beverage is more easily absorbed into the body, and the introduction of Coca-Cola's dual-purpose drink Aquarius Active Diet which both replenished lost moisture and burns calories using the metabolism-enhancing ingredient carnitine.

Japan is the second largest market in world for energy drinks in total volume terms accounting for 12% of global consumption according to Euromonitor, behind the US with 30%. However this sector is being squeezed by functional bottled water products on one hand and over-the-counter tonic drinks on the other.

Energy drinks in Japan usually come in 100ml glass bottle formats, a similar format to nutritive tonics which, since 1999, have been classified as quasi-drugs and are thus available through the same retail channels as energy drinks. Because consumers looking for a pick-me-up tend to prefer over-the counter tonic drinks which contain stronger ingredients, manufacturers of energy drinks are increasingly turning to larger pack sizes as a means of distinguishing energy drinks from nutritive tonics. Additionally, energy drinks are under pressure from shifting consumer preferences towards healthier beverages. Specifically, diabetes is on the rise in Japan and consumers are increasingly concerned about blood glucose levels. For this reason they are switching away from high-sugar energy drinks to healthier options such as functional bottled water.

Manufacturers are therefore looking for ways to reach new consumers. With energy drinks traditionally targeted at male office workers, a shrinking consumer base, over the last two years manufacturers have begun to target teenagers, particularly during the stressful examination season. Key launches include Guts Charge from Calpis and Japan Tobacco Inc.'s mixed fruit flavoured Powerful Sassou Vitamin.

In addition to the problem of shifting consumer preferences, a further constraint on the functional drinks market will be Japan's shrinking consumer base. At the end of 2005 natural deaths outnumbered natural births for the first time in 1920, signalling the start of population decline. With a shrinking market for functional drinks, RTD tea and Asian speciality drinks are set to drive growth of soft drinks in Japan between 2005 and 2010. And being the world's largest market for RTD tea, it is likely that Japan will influence this global market going forward, just as product trends in functional drinks are doing.

As the health and wellness trend continues, Euromonitor expects manufacturers in other countries to look to advances and new product launches in Japan for innovative ideas to drive category growth in the future. Specifically, Euromonitor anticipates the launch of more purpose-marketed functional waters (such as beauty waters) in developed markets, and the use of new sports drinks technologies (such as amino-acid and lower osmotic pressure sports drinks) in developed markets for sports drinks, such as China, US and UK.