The expanding functional soft drinks market will continue to offer opportunities for smaller companies but, writes Helen Lewis, the growth potential has attracted major drinks corporations who are expected to bring their marketing, sales and product development muscle to bear in this growth area.

Keeping up with consumer demands can be difficult enough in a market that is growing as rapidly as functional soft drinks, but in a sector dominated by product and packaging innovation, manufacturers must continually reinvent the wheel in order to survive.

Competition is fierce in the health and wellness soft drinks market, which reached a value of US$140bn in 2006 according to a new report from just-drinks, with the UK market alone contributing around US$1.5bn.

The report Global Market Review of Functional Health Soft Drinks - Forecasts to 2012 highlights both the rise of smaller players in the functional category and the imminent consolidation of multinationals within the functional soft drinks market.

The report suggests there are already signs of leading power brands joining forces to produce innovative products with immense marketing, sales and development resources at their disposal.

For example, Coca-Cola and Nestlé have worked together to produce an energy drink called Enviga, which it claims can help consumers burn off calories. Launched in the US in February 2007, the brand certainly captured attention, although perhaps not for the reasons initially intended; Coca-Cola and Nestlé currently face a lawsuit in the US over the calorie-burning claims.

But the growing interest in functional drinks has also afforded opportunities to go-getting smaller companies. Jeremy Martin, marketing director at functional health and wellness drinks brand ForGoodness, told just-drinks: "The last 18 months has seen the biggest shock to the drinks category, which was once dominated by only a few carbonate giants. A handful of young companies such as Innocent, MyGoodness and FeelGood are in the exciting position of creating the wellbeing brands of tomorrow."

Martin believes that there are "opportunities for more health-giving, functional drinks - be they fruit, water or milk". Also, drinks with added health benefits that target specific concerns as well as promoting general health are beginning to achieve a more mainstream status. Mass-market appeal is still possible in functional soft drinks despite the premium prices associated with the natural ingredients providing the additional health benefits.

Rather than committing to the lengthy and expensive process of NPD, a less risky and increasingly relied upon option is the reformulation of existing products to include new, natural ingredients. Ingredients such Echinacea (for the immune system) and Coenzyme Q10 (popularly used for skin health) provide added value and their health benefits are understood by more and more consumers who are showing an interest in natural plants and herbs.

Coenzyme Q or CoQ10 is an antioxidant that is used as a dietary supplement and linked to the treatment of heart disease, gum disease and breast cancer.

Consumer motivations behind the rising take-up of healthier functional drinks are complex and wide-ranging. Natural and whole ingredients are predicted to hold an increasingly influential role in the health and wellness soft drinks sector over the next five years. A spokesperson for Innocent Drinks said: "We predict that superfoods are going to be big over the next 12 months, as people are increasingly interested in healthy drinks that provide something extra to their diet. Innocent has launched a Superfoods range, which is very successful. Sales of the one shot bottles have increased by 40% and the one-litre pomegranates, blueberries and açaí is the fastest selling line".

Shelley Green, co-founder of açaí drinks brand Green & Kerley, believes issues such as packaging, fairtrade, provenance, integrity of ingredients and health, are as important in the healthy functional drinks market as the rest of the food and drink industry. Green points to the rise of small companies and independents bringing niche brands and specialist ranges to the forefront.

Consumers are not only seeking better health, but a more individually styled nutritional programme to meet their specific needs. When it comes to health, consumers are concerned not only about their internal health but their external health (appearance) as well. Healthy hair, skin and nails are becoming more important to both men and women in our image-conscious society. We may be in the midst of a global obesity epidemic but many consumers are still concerned about piling on the pounds, and our obsession with weight continues unabated.

The booming cosmeceuticals ('cosmetics' and 'nutraceuticals') market can provide inspiration for FSD developers, and the use of ingredients such as collagen will increase to 2012 as society's obsession with beauty continues. Japan leads the way in terms of beauty drinks innovation with companies such as Shiseido and Kanebo investing in the development of collagen-based drinks. This trend will gradually shift into the developed FSD markets in other regions such as North America, Australasia and Western Europe, where a high price is placed on beauty and anti-ageing products.

Many natural functional soft drinks, aimed at improving external health/appearance, have been launched over the past two to three years, such as Yagua Beauty Juicer, a blend of grapefruit, ginger and white cocoa enriched with collagen and aloe vera which was launched in the Netherlands in 2004.

Iris Bex, product manager at Yagua said that 2006 had been a very successful year for the company, seeing the introduction of three juicers and two tea-based drinks: Yagua Beauty Tea and Yagua Purity Tea. Bex said the company had plans for major expansion in 2007 to optimise the growing interest in beauty-boosting nutrition. "Our distribution is broadening in the drugstore sector including Kruidvat stores," she said. "Moreover, we have plans to launch other beauty products including snack bars."

As consumer demands in the health and wellness drinks sector evolve, manufacturers, suppliers and retailers will be expected not only to keep up with, but also provide inspiration for shoppers seeking optimum health. In such a competitive market, maintaining strong growth and high market shares will become a more complicated objective for everyone involved, including the large power brands.

For more information or to download this report, click here.