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What’s driving growth in the functional beverage industry?

The functional beverage industry is booming. The market is predicted to rise by as much as 12% compound annual growth rate (CAGR) by 2022, with vitamin-infused beverages, probiotic drinks and ‘better for you’ teas enjoying a year-on-year increase in sales; as consumers become increasingly health conscious.

In the last few years, the understanding of the health risks associated with a high-sugar diet has increased, largely driven by consumer’s desire for product authenticity, traceability and transparency. There’s a shake-up and wake-up happening across the food and drink industry, with consumers becoming more conscious of the ingredients going into their food and drink.

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Given the introduction of the sugar tax, lowering sugar content in beverages has become a challenging task for industry players. Businesses are looking for new ingredients and broader varieties to attract and retain consumers, and as a result, the beverage industry has witnessed an increase in low-sugar, clean label and ethically sourced products. The emergence of ‘better for you’ beverages coupled with marketing tactics such as clean labels have dramatically changed the functional beverage industry in recent years.

No longer is the focus so heavily placed on high sugar content that effectively ‘re-energises’, but instead on maintaining a healthy and balanced diet and lifestyle. Being a market leader in the leading functional beverage category in Ireland and now taking the UK by storm, we’ve explored the industry trends that are driving the functional beverage category.

Changing consumer appetite

One of the most notable rising trends in recent years has been businesses focusing more on health, highlighted by the increase in sales of healthy beverages such as coconut water, probiotic water and vitamin drinks. In addition, we’ve witnessed the emergence of new innovative and specialised brands focusing solely on health-conscious consumers.

However, regardless of how healthy certain products are, we are still seeing ‘taste’ as the number one driver for purchase. Nevertheless, in the 10 years we’ve been in the market we have never seen such consideration and public interest in health. It is clear this modern drive for healthier lifestyles and improved standards of living is no fad. Health is no longer a trend, but a way of life that is growing at breakneck speed and will remain a prominent feature of the drink industry in the years to come.

In addition, we have witnessed a decline in carbonates which is no doubt due to the unhealthy credentials of most carbonated beverages. It is however, still a massive part of the consumer market and is still something the industry is working on. Reducing sugar content in drinks will continue to be a driver in the beverage industry.

Innovation

Innovation is another key driver in the beverage industry with the market continually demanding new and exciting products; goods that haven’t been seen, or in this case, tasted. Fresh to market products attract first-time-buyers and from there it’s the industry’s job to maintain their thirst.

There has been an influx of reformulated products since the introduction of the ‘Sugar Tax’ in April. This has had a negative effect on sales in some cases however where products are reformulating for business sake and not for health sake. In trying to achieve the tick box numbers for sugar taxation, these products have altered flavour profile which has been catastrophic.

Consumers are incredibly savvy now and they understand what businesses are trying to achieve by doing this. It is clear that the reformulation is not for the sake of the consumer but instead a way for businesses to look after themselves. We should be innovating to create new, tasty and healthy products for health sake, not just for business sake.

Marketing

Branding and marketing play an important role in providing the consumer with an aesthetically pleasing product; boosting the retailer’s cause for high footfall shelf locations. We’re witnessing an increase in products that are clear, concise, colourful and most importantly appealing, attracting the gaze of the consumer who can then see for themselves the clear benefits of healthier alternatives.

VIT HIT learnt very early on that we hadn’t hit the mark when it came to branding. A complete overhaul kept the brand alive and allowed the products to flourish – we have seen YoY growth ever since. Whilst brands were focusing on brightly coloured packaging, we let the product do the talking with its all natural colours and stark white labels with a circular logo to draw the consumer in. It is almost in opposition to the competition on shelf and allows VIT HIT to stand out amongst the incredibly busy shelves of retailers.

Competition

Finally, competition is also an important industry growth driver, as it drives the industry to innovate and expand. At present, there is a limited number of healthier beverage alternatives. There’s no doubt the number of healthier options will continue to grow, and that growth will only boost the industry, increasing the demand and drive the players within.

The functional beverage and vitamin enhanced sub-category has seen its fair share of major players over the past few years. There have been attempts to revive this category however all have failed. We have seen our biggest competitions value category shares fall by over 40% in 2018 whilst VIT HIT has achieved over 60% YoY value growth in the same period.

Looking to the future

As health will continue to be a main driver, we’ll see sugary sodas which currently dominate the shelves decline at an increasing rate. Innovation from more specialist and niche businesses will continue at a pace. Low sugar, natural alternatives will be trialled in place of more mainstream soft drinks with high sugar and caffeine contents.

In the future, as the competition continues to grow and gain market share, the industry’s businesses must innovate, improve efficiency and drive to boost their own market share. Broadening consumer choice and driving demand. Likewise for branding and marketing, increased competition and demand ensures businesses will create new campaigns and tactics that keep the industry modern and progressive.

By Ryan Hacker, UK sales director at VITHIT, a low-calorie ‘smart-drink’ infused with juice, tea, water and 100% of GDA of vitamins

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