Naturally healthy - The next wave of growth for soft drinks - Research in Focus

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Recent research by Euromonitor International into the health & wellness trend in soft drinks shows that the description of 'natural' is very much a self-governed practice: There is not yet any conclusive and scientific definition for the term.

The lack of a clear definition is causing confusion and harming the trustworthiness of natural claims. In view of the mindful-eating trend, consumers are paying more attention to product labels and showing a preference for those that use natural ingredients. Today, manufacturers are compelled to explore various new ingredients for new product development and nurture the next big thing, following the successful take-off of segments like coconut water.

Despite the confusion, Euromonitor International's ethical-labels database shows that retail value sales of packaged food carrying the "All Natural" label far outweigh those of soft drinks, with both industries expecting an upward trend in taking up the label.

RTD tea underpins Asia-Pacific's strong growth

In 2016, Asia Pacific accounted for over one-third of global naturally healthy (NH) food and beverage sales. The region is also forecast to post the largest value growth over the five years from 2016 to 2021, thanks to the major presence of tea beverages.

China, Japan, India, Indonesia, Pakistan and Vietnam are the major tea consumers and will continue to offer great potential for growth. RTD tea, as a convenient version of the older style of hot tea, has recorded rapid growth in Asia, where rapid industrial development has led to time-pressured lifestyles.

In terms of global spend on NH foods and beverages, Australasia topped per capita expenditure last year at US$148. By contrast, Asia Pacific stood at $20, far below the global average of $34, suggesting strong growth potential ahead.

Bottled water leads the way

Still mineral water generated the largest value sales in the overall NH market last year, hitting around $30bn globally, according to Euromonitor International's HW database. In many countries, still mineral water is a scarce natural resource, thus the cost of extraction, preservation and transportation warrant a price premium over purified water.

Danone's Evian leads global NH still mineral water sales, although Chinese brands Ganten and Evergrande Spring have expanded rapidly, making significant share gains. The Chinese middle class is inclined to trade up from purified water to functional and natural mineral water, which has prompted companies to locate the next hot sources.

The segment benefits from multiple consumption occasions. Consumers are also growing increasingly conscious of sugar content and artificial ingredients in sports and energy drinks. The fact that every natural mineral water brand has an identifiable and specific source allows brand owners to conveniently build a marketable story, and therefore an association with trust and traceability. This fits well with consumers' desire for authenticity and transparency.

Sales of NH still spring water are also expected to advance rapidly, which is likely to spur manufacturers to locate new natural sources. The Wonderful Co's Fiji water, for example, trades on its provenance: Fiji water grew its global sales between 2011 and 2016 by 56%.

Turning specific botanicals from a fad into a daily regime

Botanicals are a natural fit for NH products and proved a new avenue for growth. Mainstream players are speeding up their movement into the "natural world", either by extending or reformulating their existing products, or by investing in or acquiring brands. This situation has created a good selling opportunity for strongly performing small or medium-sized brands.

The growing interest in ancient wisdom and formulations, coupled with an influx of funding, is positive for raising the NH profile and overall market development. Supported by financial strength, some ingredients - and brands - may have a better chance than those with limited investment of becoming part of a daily regime.

Newly-found botanical ingredients are constantly hitting the shelves in healthfood stores, making for a highly-competitive landscape for start-ups. It is a huge challenge to retain consumer interest in the long term, with few companies enjoying success. While ancient herbs and grains may appeal for their long history, it is hard to make official claims, given the strict EU and FDA regulations. Faced with an influx of fashion-driven, new or ancient ingredients and flavourful marketing messages, there is a danger that consumers may feel overwhelmed and confused, and become fickle or sceptical towards new releases.

Globalisation has created more opportunities for cross-cultural exchanges and influences between traditions and food and beverages. Traditional Chinese, Indian and Hispanic herbs, beliefs, wellbeing concepts and treatments have progressively spread throughout the West.

This situation has translated into a gradual acceptance of and willingness to sample the food and beverages associated with these cultures, thus creating potential application opportunity.

Sectors: Soft drinks, Water

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