Management Briefing

The Future for Drinks - Part I: Functionality, Health, Individualisation to Reign

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In part one of this month's management briefing, MJ Deschamps considers the roles that functionality, health and wellness and technology will play in shaping the consumer - and his beverage choices - in the future.

In 20 years’ time, consumers might look back on today’s beverage market and laugh at the fact that people were once buying drinks just because they were thirsty.

“We’re going to start seeing a whole lot of new, nutritional ingredients popping up in our drinks soon – functionality will be the biggest theme in 20 years,” says Tom Pirko, president of California-based international food and beverage advisory firm Bevmark LLC.

Drinks manufacturers are already starting to gravitate towards this trend of functionality: In 2010, UK-headquartered Tata Global Beverages released a jelly-based drink in the UK that helps consumers keep hunger at bay between meals without filling them with unwanted calories; this year, US dietary supplement manufacturer Cellutions LLC unveiled an anti-ageing and rejuvenation beverage in selected southern US markets. Meanwhile, US-based Glaceau’s Vitamin Water, which includes electrolytes and vitamins C, B3, B5, B6, B12 and E, has proved popular in North America, the UK, France and Australia in recent years.

These are just a few examples of the route consumption is taking.

One trend that has been predominant in recent years, and will intensify over the next couple of decades, according to Pirko, is the drinks industry’s focus on health and wellness: “Manufacturers are also going to take all the calories out of soft drinks. There will be no more ‘diet’ – no calorie drinks will be the norm.”

Rick Haffner, beverages industry manager at market researchers Euromonitor International, agrees with Pirko that functional drinks will be the biggest beverage market in 20 years' time. “Functional additives that you’d normally get in pill form from the drug or nutrition store will be going into drinks,” he says. Even the alcoholic beverages market will feel the impact of the global push for health and wellness in years to come – a 2010 report by market analysts Business Insights predicts that the demand for organic and natural drinks, with low and zero calories or carbohydrates and more functional, ‘healthier’ beer, wines and spirits, will continue to grow in years to come.

Energy drinks are another market that is predicted to continue to grow exponentially: “From being too small to measure 20 years ago, the energy and sports drink market is now worth GBP1.5bn (US$XXX) a year [in the UK], and is growing in volume at an average of more than 11% per year,” says Richard Laming, media director at the British Soft Drinks Association.

One pointer to the future is to consider the way business models are changing thanks, in part, to the way people share and disseminate information due to technological advances. “The hard part right now in predicting what the beverage market will look like in 20 years,” notes Pirko, “does not have to do with what people will drink, but how the business is going to be administered,” he said, adding that Bevmark has been working with its drinks clients to make the marketing of products more individualistic and interactive.

“Looking to the distant future,” Pirko continues, “it is quite possible that you will be able to design and customise your own beverage – and quickly – through your smartphone. Of course, the industry would still have to work out how to get such a product into a consumer's hands once they have designed it. “The personal choice and freedom that comes with the vast array of information available through technology will take what is now a standard business - where you buy something that someone has put in front of you – and break it down in the future.” In addition, he says, standard brands as we know them will most likely break down, too. “We’re going through a very troubling period for big, monolithic brands right now, since there is no longer the same kind of brand loyalty in existence as there once was.”

Big drinks brands face a quandary of sorts, Pirko believes, as they start to build presence in developing countries because of increased disposable income. In more developed markets, meanwhile, there is so much product choice available to consumers that the standard model of the ‘big brand’ is being broken down.

Rising incomes and increased urbanisation will pay a large part in the future in the emerging markets. According to Haffner, the drinks market will start to reflect the cultural changes these movements encourage, such as Chinese consumers preferring packaged drinks on-the-go instead of the tradition of buying tea in big barrels.

Martin Jones, president of Artisan Source, a US-based management firm specialising in the alcoholic beverage industry, believes that ageing populations and merging multi-national market influences will mean a more diverse portfolio of alcoholic drink offerings. “Brazil, India and China will be the biggest prizes for the multi-national drinks companies, which will probably have doubled their share of the world’s beverage alcohol business [in 20 years],” he says. In the wine sector, US and Chinese palates will have developed a better appreciation for fine wines, he predicts, while the beer business will continue to struggle, but should remain profitable because of niche marketing. He also believes that niche brands will continue to grow into large, leading brands in developed and richer emerging markets. “It takes niche opportunities to build large brands,” he says. “Thirty years ago, the import beer category [in the US] was very small but, over the past 30 years, it's gone from niche brands to leading branding to mature brands. We are now seeing craft beers - born 20 years ago - as the hot niche.”

Convenience will continue to play a major part in how products are acquired and consumed, Jones says. “In the US, what the consumer wants will ultimately determine how business is conducted.”

Looking to the youth of today, Pirko believes their biggest demand is for choice. “There is no more brand loyalty, and (young people) are changing their choices as fast as new products are introduced,” he says. Subsequently, the world’s major beverage companies have no choice but to begin to move away from one, monolithic product and icon, and start diversifying their offerings. Pirko also forecasts that the marketing of beverage products will also undergo a major change in years to come. “There will be fewer ads for the same beverage and more ads for exciting beverage products that sort of come and go, instead,” he believes.

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