What is a functional beverage? A guide for beverage entrepreneurs

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  • What is a functional beverage? A guide for beverage entrepreneurs

    Functional beverages are an innovative sector in the beverage industry because they give consumers many health benefits that they can choose according to their own needs. These benefits could be energy boost, targeting particular disease, fighting stress or beauty purposes.

    Because of performing various valuable functions, functional beverages take a large segment of the functional food sectors.

    This article will give you insight into the functional drinks  (what it’s, its market size, some competitive brands, etc.), which is the basic knowledge that you need to know before starting your beverage business.

    What is a functional beverage?

    Functional beverages are nonalcoholic drinks providing health benefits beyond their nutritional value, positively affecting or functional focusing on the body or mind to promote the state of health and well-being.

    Functional beverages often contain nontraditional ingredients like raw fruit, minerals, vitamins, herbs, protein, amino acids, probiotics, and some artificial additives.

    4 common functional beverage types and their health benefits

    1. Energy drink

    Energy drinks are regarded as a type of functional beverageEnergy drinks are regarded as a type of functional beverage containing combinations of characterizing ingredients like taurine, caffeine, vitamins, carbohydrates, and other substances with nutritional or enhanced physiological effects.

    Energy drinks take the central portion of the functional beverage market. Their consumers are mainly adolescents and young adults who use energy drinks daily to increase energy, stay concentration, or reverse fatigue.

    In modern life, everyone gets busy studying and working, so a can of energy drink will help people increase alertness and attention and reduce sleepiness at night thanks to fast caffeine consumption.

    And that’s why people love energy drinks and keep coming back for them.

    By the end of 2020, the market size of the Energy Drinks industry was $61 billion and is projected to reach $86.01 billion by 2026 and primarily located in the United States, China and Brazil.

    2. Functional water

    Functional water is simply H2O with added altered chemicals like oxygen, hydrogen, caffeine or herbs that bring health benefits with target functions.

    Adding electrolytes will help replenish sodium and other electrolytes after doing strenuous exercise and sweat profusely or losing electrolytes suddenly.

    Boosting the hydrogen make people promote energy, recover quickly after working out and reducing inflammation

    Adding caffeine content will bring caffeinated water, helping with improving memory and boosting concentration. It’s useful for the young and adult who need a sound mind in the morning.

    3. Sport drinks

    Sport drinks increasingly add carbohydrates in the form of sugar,  low-calorie sweeteners and sometimes contain vitamin B to boost energy. The primary target function of sport drinks is to refill glucose, electrolytes, hydration, sodium and other lost substances quickly during strenuous physical practices.

    Sport drinks are just used for the adult athletes.
    Sport drinks are just used for the adult athletes.

    Mainly, sport drinks are just for the adult athlete because they provide a specific amount of ingredients that suits people who usually have challenging physical activities as an athlete.

    4. Nutraceutical drinks

    Nutraceutical drinks have components from fruits, vegetables, and plants like tea, soybean, cocoa, and dairy-based beverages. Nutraceutical drinks are made from various resources and have many favorable tastes and healthy promotions.

    Based on the current health concerns of consumers, nutraceutical drinks perform solutions for these specific concerns such as brain health, heart health, boosting energy, immunity and beauty from the inside out.  

    The functional beverage market in the global beverage industry

    Market size

    functional beverage market sizeAccording to the recent reportthe international functional beverages market reached a value of nearly $128,660 million in 2019, increasing with a 4.6% CAGR (annual growth rate) since 2015.

    The marketplace had decreased from $128,660 million to $125,390 million during 2019 and 2020 at a rate of -2.5%. The reason for the decline rate is lockdown and social distancing norms imposed by various countries and economic slowdown across the globe because of the COVID-19 outbreak and its measures. The market will recover and grow at a CAGR of 8.07% from 2021 and reach $158,280 million in 2023.

    From now on, a growing number of health-conscious consumers, faster economic growth; growing demand for immunity-boosting foods and beverages; and rising engagement of organized retail will drive the market for functional drinks.

    The global functional beverage marketplace is categorized according to type, distribution channel, and geography.

    By type, the market is classified into energy drinks, sports drinks, fortified juice, dairy and dairy alternative beverages, and other styles.

    The distribution channel is segmented into supermarket/hypermarket, drug stores and pharmacies, convenience stores, online/offline retail stores, and other distribution channels.

    Based on geography, the market is divided into North America, Europe, Asia-Pacific, South America, and Middle East & Africa.

    Challenges and opportunities

    • Challenges

    There are huge factors that could hinder the growth of the functional beverages market in the future; increasing tax includes the complication of acceptance and purchase intentions of consumers and the wide availability of traditional and natural substitutes.

    Increasing tax is one of the integral issues of every functional beverage business
    Increasing tax is one of the integral issues of every functional beverage business

    Many countries actively consider tax increases for unhealthy foods and drinks. There has already been a rise in taxes on ‘unhealthy’ food and beverages by the Danish, Mexican and Hungarian governments.

    In 2014, Mexico levied an 8% tax on sugary beverages. Similarly, in 2018, the UK also revealed a tax on sugary drinks. These changes are likely to create significant restraints for the food and drinks, including functional beverage processing companies, especially for those multinational organizations exposed to different tax regimes across varied geographies and countries, thus restricting the global market growth.

    • Opportunities

    The top opportunities in the functional beverages industry segmented by type will arise in the energy drinks market segment, which will reach $9,220.7 million of global annual sales by 2023.

    The functional beverages market size will get the most in China at $8,192.2 million.

    Functional beverages are on fast-growing traffic
    Functional beverages are on fast-growing traffic

    While typical soft drinks and energy drinks have seen a decline in sales due to Covid-19, the pandemic represents a vast opportunity for functional beverages. There is an increased demand for healthier beverages, and functional ingredients are perfectly poised to meet these needs. The market growth in 2020 is dominated by:

    • Kombucha and fermented drinks, up 15.7% over the previous year
    • Functional water, up 12.8% over 2019
    • Energy and other functional beverages, up 11.7% from a year earlier
    • Coconut and plant waters, up 10.1% from a year earlier

    Current trends

    • Raising Demand for Healthy Hydration Products

    The changing of consumer needs toward health-oriented beverages has promoted probiotic beverage products.

    People have started to prefer functional drinks over other beverages
    People have started to prefer functional drinks over other beverages

    People increase their awareness of the health implications associated with soft drinks categories. Concerned drinkers are frequently shunning vilified categories, like carbonates and juices, in favor of ‘healthier choices, such as soymilk, probiotics, and other functional drinks. Consumer knowledge has been the key factor behind the growing demand for healthy hydration beverages.

    The new trend of healthy hydration owes its success to raising awareness toward fermented drinks with natural ingredients, free preservation and the increasing acceptance of consuming probiotics.

    • Relaxation Drinks

    Energy drinks contained with caffeine and other stimulating ingredients have been in demand for many years. Still, recently, some consumers are shifting their tastes to ‘relaxation drinks’ for purposes like switching off from busy lifestyles, a good night’s sleep, stress relief, or as calming beverages.

    Relaxation drinks support stress relief and promote sleep
    Relaxation drinks support stress relief and promote sleep

    Some popular brands such as Just Chill and Tyme Out hold out caffeine-free functional drinks that support stress relief and promote sleep. Relaxation drinks first launched in Japan in the mid-2000s and have since made their way into the US market.

    Some relaxation drinks manufacturers target working professionals and busy mothers who require additional functional attributes in their daily lives. A leading manufacturer of relaxation beverages is Tranquini, which offers beverages including ingredients such as chamomile, lavender, and green tea extracts. The brand already has sites in many European, Asian, and African markets.

    • Natural Botanicals Infused Drinks

    The botanic drink is the latest trend predominant in the functional beverages industry. Natural botanicals are extracted from plant parts like roots, flowers, fruits, leaves, or seeds and bring various practical benefits ranging from improving memory to boosting energy, burning fat, and offering immune system support.

    Top companies operating in the market are introducing several types of drinks that are infused with natural botanicals.

    Botanic drinks are extracted from plant parts
    Botanic drinks are extracted from plant parts

    For instance, Binggrae, a South Korean beverage manufacturing company, manufactures Kanguru. This Australian functional botanical infusion drink contains five natural botanical ingredients: yerba mate, guarana, Schisandra, Korean red ginseng, and green tea.

    After five weeks of its launch, the company expected sales to exceed 500,000 cans across 24,000 convenience stores in South Korea. Hence, natural botanical-infused drinks are gaining immense popularity in the functional beverage market.

    Top 7 most competitive functional beverage brands you need to know

    1. Redbull

    Redbull is the first energy drink on Earth
    Redbull is the first energy drink on Earth

    Dietrich Mateschitz is the founder of Redbull in the mid-1980s. From 1984 to 1987, the founder developed the formula for Redbull, the packaging, and built the brand and the marketing concept for three years. On April 1, 1987, in Austria, Redbull Energy Drink came to the world and became the first energy drink on Earth.

    In 2020, Redbull sold 7.9 billion cans worldwide – up to 5.2% over the previous year. Group sales increased by 4.0 %, from 6.067 billion euros to 6.307 billion euros. Sales quantity, turnover, productivity and operating profit were further expanded and represent record statistics in the history of Redbull.

    The reasons for the wholesale growth are positive developments in other Redbull sites like Turkey  (+23%), Germany (+19%), Russia (+16%), Canada (14%), Switzerland (+11%) and the U.S (+10%).

    Counting to the end of 2020, Redbull has had 12,618 employees across 171 countries.

    2. Monster 

    Best boosting energy beverage for a tiring day
    Best boosting energy beverage for a tiring day

    The early name of Monster Beverage Corp is Hansen Natural Crop, which was established in 1990. Monster Energy drinks first launched in 2002 and have 36 varieties such as flagship Monster Energy drink to double-strength, coffee-flavored, fruit-flavored, no-calorie, protein-enhanced and others.

    As of 2020, Monster held nearly 39% of the $57 billion US energy drink market and 5.9% global market share of sport/energy drinks. Monster Beverage Crop has sites across 114 countries with nearly 3529 employees.

    Monster is the second-largest giant energy beverage company, just after Redbull.

    3. Aqua ViTea

    Aqua ViTea was launched in 2017 in Middlebury, and the founder is Jeff Weaber. Aqua ViTea offers authentic, non-alcoholic Kombucha products with bubbly, delicious flavor and natural probiotics, which will satisfy consumers who love healthier beverage options.  

    4. Rockstar

    Rockstar is an energy drink found in San Francisco in 2001 by Russ Weiner. In the summer of 2009, Rockstar changed its distributors from the Coca-Cola Company to Pepsico.

    Rockstar is the third biggest giant energy drink brand, just after Redbull and Monster
    Rockstar is the third biggest giant energy drink brand, just after Redbull and Monster

    Rockstar offers 27 types of drinks, ranging from Rockstar Original energy drink to zero carbs (10 calories) and zero-calorie versions, recovery drinks, coffee flavor and others. Rockstar’s main ingredients contain carbonated water, sucrose, glucose, taurine, caffeine, milk thistle extract, guarana seed extract and L-Carnitine.

    Rockstar is widely available in more than 30 countries, and its marketing concept includes action sports, motorsports, and live music.

    In 2020, because of the effect of Covid-19, Rockstar sales had been on the decline. In the U.S, the sales were reported to 171.24 million U.S dollars in 2020, down from 190.68 million dollars to the previous year.  

    5. Smartwater

    Smartwater offers functional beverages with various options
    Smartwater offers functional beverages with various options

    Smartwater is a line of The Coca-Cola Company, offering functional beverages with various options for every occasion. Smartwater’s hydration product is to promote regular replenishment, complex physical activities and healthy living. Vapor-distilled product is for purity and added electrolytes for good taste.

    Smartwater contains a unique mix of calcium, magnesium, and potassium. SmartWater creates a flavor that is entirely fresh, crisp and pure. Besides, Smartwater’s products are healthy-friendly with free sugar, calories, coloring and artificial additives.

    6. Recess

    Recess drink helps people find to relax and calm feeling
    Recess drink helps people find to relax and calm feeling

    Recess is a functional beverage with assisting consumers to feel calm and stay focused when they get stressed. Recess offers three main types of drinks: recess, recess mood and recess mood powder with many natural flavors.

    Recess drink is sparkling water infused with hemp extract and adaptogens for a calm feeling. There are seven delicious flavors with natural ingredients such as broad-spectrum hemp (calms the mind), American ginseng (boosts vitality), L-theanine (eases tension) and lemon balm (improves equilibrium).

    The second type is recess mood added with magnesium and adaptogens to release stress and boost the mood. Made by natural fruit without artificial ingredients will make the taste more favorable. Recess mood has four primary flavors: strawberry rose mood, peach ginger mood, blood orange moos, and black cherry mood.

    Recess mood powder contains magnesium and adaptogens plus electrolytes in powder-based texture with healthy components like magnesium L-theanine, passionflower, L-theanine and electrolytes. Consumers can add this powder to their daily drinks like smoothies, coffee, water or whatever they want.

    7. Propel

    Propel Water was first introduced in 2000 by the company Pepsico and produced by Gatorade. The main ingredients in Propel Water are citric acid, natural flavor, calcium disodium EDTA, sodium citrate, Vitamin C, and Vitamin B3, B5, B6.

    Propel water provides electrolytes and vitamins that help hydrate and replenish after a hard workout and support the immune system. With various types of products, from liquid-based to powder-based and many fruit flavors, consumers can have the best options based on their needs.

    Conclusion

    Functional beverages are on the top sector in the beverage market in recent years. They are beloved by most young adults and adolescents because of helping them get a better mood, release stress and stay focused.

    We hope that this article has helped you to understand this kind of beverage better. There’s a lot more about the beverage industry, and if you want to learn more, check out our blog.

    Lilian Nguyen
    Lilian is an expert in oem, odm, private label beverage industry with 8 years of experience. I believe that it is crucial for companies to focus on the benefits which the product provides to their target customer and what does it mean to the community. When i am not working, i run a blog on making healthy snacks & drinks and join in a hiking club.

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