šŸ§‰ Functional Drinks Boom!

The only 4 insights F&B Industry leaders need to understand this emerging trend.

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Why is kombucha everywhere these days? And why is soda suddenly good for you? Thatā€™s because the market for functional drinks is exploding and weā€™ve got all the details for you.

Today:

  • In The News: UK cell-ag commitment, brand bets on AI and Metaverse, + more.

  • Trending with Gen Z: fruit roll-ups and ice cream.

  • Innovation Deep Dive: 

    • 1. What are functional drinks?

    • 2. Why all the buzz?

    • 3. What are the companies to watch?

    • 4. Challenges for functional drinks

  • Numbers for Functional Drinks: regional markets are set for growth at min 6% YoY over the next five years.

šŸ“° In The News

A curation of our favorite F&B innovation stories from the week. Can be read in less than a šŸ§» break.

šŸ“±Trending with Gen-Z

What social media is telling us about Gen-Zā€™s cravings!

  • Fruit Roll-Ups and Ice Cream: TikTok is currently wrapped up in the bizarre combination of ice cream wrapped in Fruit Rolls-Ups (a fruit-based sweet snack). God that crunch is satisfying. (click the image to load the video)

šŸ§‰Innovation Deep Dive: Functional Drinks

Do you need a pick-me-up?

Rather than looking for it in the bottom of a coffee cup, you might have better luck with a bottle of water. Or a non-alcoholic cocktail. Or just about any number of formats that now come infused with functional perks for your body and brain.

The market for functional beverages is booming as more and more consumers worldwide seek drinks with enhanced benefits for body and mind. The global market for functional drinks is expected to grow 9% YoY until 2030, reaching a value of $294 billion - more than double what itā€™s estimated to be today.

Hereā€™s everything you need to know about this market in 4 digestible points.

1. What Are Functional Drinks?

Functional drinks provide health benefits beyond basic hydration and nutrition. They contain added ingredients like vitamins, minerals, herbs, and other bioactive compounds. These are purported to bring benefits such as improved energy, mental focus, relaxation, immunity boosts, gut health, and sleep.

Almost every format now has functional offerings: teas, energy drinks, kombucha, fruit juice, yogurt drinks, sodas, no-alc alternativesā€¦heck, even water.

2. Why all the buzz?

Itā€™s not that everyoneā€™s had one too many Red Bulls. The COVID-19 pandemic has made consumers more conscious about their health, with research suggesting their focus is on prevention. That means products that boost immunity, keep stress at bay, and promote good bodily functions - from bowl to brain and everything in between - are in demand.

Consumers are also turning to beverages to help improve performance. Work is a key occasion for this. Interest in products that supposedly boost concentration, reduce anxiety, and even shorten meal times, is skyrocketing.

And this extends beyond the workspace. Functional beverages are also becoming popular non-alc alternatives for after-work drinks as more and more people explore the sober curious movement.

With health and ā€œgood for youā€ being the primary focus then, consumers are turning away from sugar and unhealthy additives that are the go-to for traditional functional beverages like coffee and energy drinks.

Instead, a host of new innovations are concocted to meet growing demand.

3. Whatā€™s Trending?

A report from Kerry Group suggests 63% of consumers are willing to pay a premium for food and drinks with functional benefits. Players are frothing at the bottle caps to meet their needs. Ready to see some of the top products?

  • YATE is an energy tea that is based on yerba-mate, a South American tea with caffeine content similar to coffee, but without negative side effects like crashes and jitters. Though it is a Singapore-based brand, they are building a strong presence in the US.

  • Focus from Doctor V, an Australian startup, is an energy drink enriched with nootropics and adaptogens including pine needle extract, sea buckthorn berries, and schisandra. Doctor V is expanding its products through retail channels in Australia and APAC.

  • Soulboost is a functional sparkling water from PepsiCo. The product launched in the US in 2021 and is enriched with real fruit juices, like blueberry and pomegranate, and L-theanine, a nootropic that helps boost relaxation.

  • Sleep & Recovery Lemon is a milkshake mix designed to support sleep and eye health. Made by German startup Just Legends, the product is aimed at gamers and those who routinely take part in marathon sessions in front of screens.

  • Poppi is a prebiotic soda that has captured a significant market share of the US functional soda market. Its sodas are enriched with Apple Cider Vinegar, a prebiotic.

  • Immune Tea, part of the Tetley tea brand, has been launched in several global markets and is formulated to boost the immune system with additions such as Vitamin C or Zinc.

  • Fruitify is Doleā€™s lineup of functional juices, fortified with functional ingredients like turmeric and coconut water. The beverage, which contains no added sugars or fructose corn syrup, was launched by Dole as part of their pledge to eliminate added sugars from their products.

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4. Do the claims hold up?

Many of the supposed health benefits of ingredients used in functional drinks have yet to be backed up by thorough research. Whatā€™s more, most of these products do not clearly state the dosage of ingredients. This means players must take great care about the health claims they make about their drinks.

But, thereā€™s psychology at play too. According to Tatiana Mercer, co-founder of functional non-alcoholic aperitif Three Spirits, which is designed to give a buzz similar to alcohol:

Belief and anticipation are really important. Thereā€™s the smell, thereā€™s sitting down with your friendsā€”there are all these things that are contributing factors to how you feel on a Friday night.

Functional drinks need to be marketed in ways that appeal to consumer desires. In many cases, this is about focussing on the benefits they bring, such as being the fuel that fires a fun Friday night with friends.

Itā€™s also important to note that the use of novel ingredients in functional beverages can cause a regulatory headache for innovators in the space. Products containing CBD cannot be sold in certain US states for example, even though the ingredient is legal at the federal level. Innovators must pay special attention to how ingredients in their drinks are regulated.

All in all, despite some opacity, consumers around the world are eager to believe in and buy functional products.

šŸ“ˆ Numbers From Regional Markets

How big is the functional drinks market? We asked Google and aggregated the deluge of estimates to save you some time.

North America: In 2021, the market for functional beverages in the US was estimated to be close to $50 billion USD. Itā€™s projected to grow at a CAGR of 6.6% up to 2025.

Latin America: Glanbia Nutritionals, a dairy and non-dairy product producer, estimated the market for functional, beverages was $14 billion in 2021. They point to 7.4% CAGR up to 2024.

Europe: Between 2021 and 2026, the functional drinks market is expected to grow to $14 billion.

Middle East & Africa: The Middle East and Africa are thirsty for more function. Mordor Intelligence suggests the market will grow at 9% CAGR up to 2028. Imarc predicts the market for sports and energy drinks alone will reach $4.7 billion by 2027 with a CAGR of 7%.

APAC: Accounting for 40% of functional beverage sales, the APAC market is predicted to increase from $74 billion to $97 billion by 2026.

Thatā€™s all folks

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