Functional Drinks – Part I: Introduction and Overview
By Ben Cooper | 20 October 2011
The functional beverages category represents a key part of the functional food industry and, as such, exemplifies two defining yet contrasting characteristics of this sector of the market: Its considerable growth potential and its ability to court controversy.
Growing concern over diet and health may have led consumers to address their intake of certain foods and drinks, and forced manufacturers to reformulate products, but it has also provided huge scope for innovation, and functional products have played a prominent role in the better-for-you boom has been.
While the health and wellness trend has led consumers to consider what they need to take out of their diets to enjoy better health, functional drinks target consumers who wish to improve their health by adding or increasing consumption of certain foods and drinks.
However, it is this purported, quasi-medicinal capability to improve health which has led to the controversy over how these products are labelled and marketed.
This briefing looks at the growth in functional drinks and the debate over the assessment, labelling and marketing of health claims which define these products.
Functional foods and drinks are products which claim a health benefit, such as helping boost the immune system, mental alertness or energy, lower cholesterol, or help maintain gut, bone and heart health. Foods include cereals, spreads, oils and baked goods, but functional drinks are a major category, primarily comprising functional milks and dairy drinks, drinking yoghurts, functional and functionally fortified soft drinks and juices, energy drinks and sports drinks.
Some health claims are couched less specifically than others and this disparity leads to some differences in how the category is measured, but from a generic standpoint it could be said that any drink which is positioned as offering some form of health benefit, other than simply being better for you by dint of its basic nutritional composition, can be described as “functional”.
Varying definitions mean that estimations of market size vary considerably. For instance, Mintel puts the functional foods and drinks market in the UK in 2009 at around GBP720m (US$1.2bn), while a Key Note report estimated the market to be worth around GBP1.46bn.
According to Leatherhead Food Research (LFR), the global market for functional foods and beverages rose by more than 31% between 2006 and 2009 to around US$23bn. LFR believes that the functional market will have increased to US$25.1bn by 2012 and to US$27.1bn by 2015 to US$27.1bn, with the US and Europe the principal growth markets.
Beverages are one of the four largest product areas in the functional food market, along with baked goods and cereals, fats and oils and dairy.
The fact that beverages also come under the dairy sector is a further reason why consistent quantification is problematic and estimates vary. In fact, dairy is the largest functional foods and drinks category by most estimates, representing approximately 40% of the global market and up to 70% of the market in the UK and Europe.
The primary reason for the scale of the dairy share is that it includes probiotic and prebiotic foods and drinks which have been particularly successful but have also been among the most controversial products in the functional boom.
Estimates of the beverage sector’s share of the overall functional market vary considerably, primarily because of the overlap with dairy. However, as the drinks market has been such a fruitful area with regard to the development of functional products and product variants, the beverages category is thought to account for at least 12% of the total functional food and drink market by value and substantially more if a broader definition of functionality is used, whereby energy and sports drinks for example are also included.
Principal functional beverage products
Probiotic and prebiotic yoghurt drinks are arguably the best known functional beverage products on the market, due to their huge popularity and the controversy they have attracted.
Yakult Honsha launched the first probiotic drinking yoghurt, manufactured using fermented milk containing live lactic-acid bacteria, in Japan in 1935. The essential premise of such products is that they re-balance intestinal bacteria to aid digestion.
In addition to Yakult, other major players in this sector include Danone, with brands such as Activia and Actimel, and Müller. Fortified variants, for example incorporating omega-3, calcium and plant sterols to lower cholesterol, have also been introduced.
The dairy sector’s share of the functional drinks segment is boosted further by the large and growing volume of nutritionally fortified milks on the market. Among the most popular variants are those fortified with extra calcium, Omega-3 and vitamins. The development of lactose-free milks has also been a key element in the added-value milks market. Functional milks have proved particularly successful in Spain, France and the UK.
Functionality has also been extended to soy milk. Earlier this year, soy specialist Alpro launched Alpro Soy Plus, a soy milk containing plant sterols aimed at lowering cholesterol.
Functional range extensions to juices and smoothies are proving increasingly popular in many developed markets in the EU and in the US. Fortification with vitamins and Omega-3 has been the most common development but fruit juices containing cholesterol-lowering ingredients have also been introduced. Variants within PepsiCo’s Tropicana and Ocean Spray ranges are notable examples. The Coca-Cola Company has also added functional variants to its Minute Maid brand, while smoothies containing probiotic bacteria have also been launched.
The functional juice category provides a crossover between the functional food and ‘superfood’ concept, with products such as cranberry juice, pomegranate juice, green tea and other health teas often included in a more general definition of functional drinks.
Functional water represents an attractive premiumisation opportunity for water brands. Typically, functional waters are fortified with vitamins and minerals, with health benefits around weight management, improved digestion and mental alertness.
Three countries, the US, Japan and Germany, account for around 80% of global functional bottled water market, according to Euromonitor, with the strongest growth being shown in the US and Germany.
Prominent brands include the Coca-Cola Company’s Vitaminwater brand, PepsiCo-owned Propel and SoBe, Dakara from Suntory, Active O2, produced by Adelholzener Alpenquellen, and Danone’s Mizone brand.
The energy drinks sector showed a compound annual growth rate of 16% between 2004 and 2009, according to Euromonitor, which forecasts per capita consumption will grow by a CAGR of at least 4% between 2009 and 2014 in all regions, apart from Asia Pacific. The European market, where Red Bull is the most significant brand, is developed but many markets are still growing rapidly. Both North America and Australasia are also developed and still growing fast.
The sports drinks sector is a prominent category within the functional drinks arena by dint of some major brands, notably Coca-Cola’s Powerade and PepsiCo-owned Gatorade.
According to Euromonitor, the relatively mature US market accounts for nearly 50% of sports drinks volumes. While the US market has plateaued, sports drinks brands are targeting growth in other regions, notably Western Europe. Other sports brands include Aquarius, Coca-Cola’s other sports drinks brand, Mizone and Pocari Sweat.
The health claims debate
The issue of how health claims made on behalf of the functional drinks are substantiated scientifically and communicated in labelling and advertising is a major issue affecting the market and by some way the most controversial.
Moreover, the time and resources which organisations such as the European Food Safety Authority (EFSA) and the Food and Drug Administration (FDA) have had to devote to functional foods underlines that it is also a major issue for regulators and policymakers.
How regulatory authorities and legislators treat the sector will clearly have a major bearing on how the market develops. The health claims debate is discussed in greater depth in Part Three of this management briefing.
For part two of this four-part briefing, click here.
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Functional Drinks – Part I: Introduction and Overview