Beverages remain the first choice for grab-and-go foods among consumers. Functional beverages are non-alcoholic drinks that keeps one’s body hydrated and provide overall nutritional well-being. These are fortified drinks that prevent or help address health issues across all age groups. The fortification could range from ingredients such as herbs, vitamins, minerals and amino acids to additional raw fruits and vegetables.
The functional beverages sector is a sub-sector of the functional foods and non-alcoholic beverage industry. The market can be segmented based on type into energy drinks, sports drinks, nutraceutical drinks, dairy-based beverages, juices, enhanced water and others. Energy drinks is the largest segment in functional beverages followed by sports drinks and nutraceutical drinks. Another segmentation based on the ingredients used can be as follows: antioxidants, minerals, amino acids, prebiotics, probiotics, vitamins, super fruit extracts and botanicals. Regionally, the market can be classified into Asia-Pacific, North America (the U.S., Canada and Mexico), Western Europe, Eastern Europe, Middle East & North Africa and RoW (Rest of the World, including Latin America and South Africa). The market can also be divided on the basis of distribution channels into supermarkets and hypermarkets, departmental stores, mom-and-pop shops, convenience stores and others.
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North America is the largest market for functional beverages as it contains innovative varieties of drinks that are customized for all age groups and strata. Asia-Pacific and Europe come in second and third places respectively. Future growth will be witnessed in the emerging economies of Asia-Pacific and Middle East. Growing health concerns and changing lifestyles in various regions of the world are some of the major drivers of an inflated demand for functional beverages. Increasing number of health-conscious people in both developed and developing nations form the growth engine for functional beverages.
Production and marketing of functional beverages depend highly on the region of business, as choices vary considerably in taste, colour and size across the globe. For instance in Japan, “energy shots”, i.e., small packs of nutrient-loaded drink packs are staple whereas in countries like India and China, large value packs are in trend. Today, almost all flavours and ingredients are available due to advancement in ingredient and premix formulations.
Advancement in product development practices coupled with technology upgradations would drive the market for functional beverages in the forecast period. Ingredient formulation technologies such as micro-encapsulation and particle size reduction techniques have widened product offerings by manufacturers. Development of various ingredients to mask the unpleasant taste of certain amino acids and omega-3 fatty acids has revolutionized the market for functional beverages. Thus, the market is poised to grow at a brisk CAGR between 2014 and 2020.
Innovation is the key to success in the beverage industry. Utilizing ingredients such as natural food/beverage colours, low-calorie natural sweeteners and kosher ingredients are in vogue. Manufacturers are constantly embracing open innovation to gain cost-leadership and fixed suppliers in early development stage. One of the major advantages of a functional beverage is that consumers are ready to pay a premium price for its various functional advantages. Manufacturers and retailers market these drinks in several ways to attract different strata of consumers. For instance, ready-to-drink tea and fruit/vegetable juices are targeted towards obese people who are looking to lose weight. Retailers, as well as wellness centres, play an important role in promoting these products.
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The market is largely fragmented as the categories differ significantly in the functional beverages market. Some of the key players in this industry are PepsiCo, Inc., Nestlé, Kraft Foods, General Mills, Campbell Soup Co., Monster Beverage Corporation, The Coca-Cola Company and Red Bull GmbH among others. A few major ingredient suppliers are Archer Daniels Midland Co., DuPont Nutrition & Health, LycoRed Ltd., Fortitech, Inc., BASF and Nutratech, Inc.