A functional beverage is a drink product that is non-alcoholic and includes in its formulation ingredients such as herbs, vitamins, minerals, amino acids or additional raw fruit or vegetables.
They often claim to provide specific health benefits.
Examples include sports and performance drinks, energy drinks, ready to drink (RTD) teas, enhanced fruit drinks, soy beverages and enhanced water.
Functional beverages have become popular due to its appeal to consumers who are seeking specific health benefits in their foods and beverages with their 'healthiness-on-the-go' idea. Both convenience and health have been identified as important factors when consumers make decisions about purchasing foods and beverages. Functional drinks are promoted with benefits such as heart health, improved immunity and digestion, joint health, satiety, and energy-boosting.
Functional beverage sector is a subsector of the functional food and non-alcoholic beverage industry and it is the fastest growing sector. This rapid growth is partially due to the combination of maturity of the carbonated soft drink sector and heavy investments by major food and beverage companies. In 2006, the functional beverage per capita consumption have risen to 66.4 gallons, while the carbonated soft drink sector has a decline in their per capita consumption to 50.4 gallons (192.5 gallons was the average per capita consumption in 2006). Another reason for the growth is the consumer-oriented market scheme in which innovative ideas come from consumers. In US, the market share of functional beverages accounted for 48.9% of the $118.3 billion-worth non-alcoholic industry in 2008. Industry entrance is mainly driven by the higher growth annual rate of 15% to 20%.
Industry players in functional beverage industry are generally categorized into four types. One, is the traditional non-alcoholic beverage companies including PepsiCo Inc., Fuze Beverage and Coca-Cola Co. Another type consists of major food companies such as Nestlé, Altria Group, Kraft Foods Inc., General Mills Inc., Campbell Soup Co. The third group is smaller scaled private companies, like SALOMED GmbH, Austria. Other specialized segments are Traditional Medicinals and POM Wonderful. The last group are growers' cooperatives such as Ocean Spray and Sunsweet Growers.
Current product trends
Products of functional beverage industry encompass wide range of varieties targeting different health related concerns. One trend is hybrid drinks with functional and sensory benefits such as thirst quenching ability with daily dosage of vitamins or other nutrients. Another one is probiotics, exemplified by Activia yogurt, for gut health and boosting natural defenses or immune system. Memory and mental sharpness is also coming into focus with Function BRAINIAC, a carambola punch Energy Drink in the Function Drinks line. Children's functional drinks also receive much attention in recent years with leading brand Nestlé's Boost (beverage). The current trend of single serve is fueled by consumer's preference in convenience. According to Campbell's director of single-serve beverages, "People know they will be seen when they are drinking single-serving beverages, so the package is critical."  Weight loss, health and beauty drinks account considerable market share, such as Nova the Essential Drink. Lastly, energy-boosting functional beverage products, such as Red Bull and 5-Hour Energy, are rated number one in growth in the functional beverage market.
In this economic downturn, many products belonging to the specialty food category are expected to have reduced sales because paying more for those specialty items are not an option for many consumers. These consumers also tend to shop in discount grocery stores and tend to make fewer grocery trips. Despite this, the functional beverage market is predicted to have an increase in growth. This is because people generally reduce restaurant expenses first before they start cutting down grocery expenses. It has also been determined that people have become more proactive in illness prevention and control. In the past, people were very reactive in their health because health problems are treated after they arrive. Nowadays, people will take an initiative and look for a food product that will supposedly prevent an illness from occurring. Thus, all of the above features may insulate the functional beverage market from experiencing lower sales.
Competition in the functional beverage industry is primarily done in four different ways. Companies firstly focus on their own products by clearly distinguishing their health claims from similar products and specify naturally healthy ingredients. Then, extensions of existing brand lines need to be considered. The addition of Kids Essentials to the Boost (beverage) line by Nestlé is a good representation of this strategy. Thirdly, bigger companies compete for market share by acquiring smaller companies that may own a particular market sector. An example is Coca Cola purchasing Glaceau from Energy Brands and Odwalla and Fuze Beverage from their respective founders. Lastly, to increase the competitiveness of the company, one may explore new functional brands by identifying new markets and demands.
Market segments of the functional beverage industry are divided mainly by four parts. Those include hydration, energy/rejuvenation, health and wellness and weight management. Each segment has its own target market and consumers. Overlapping of target consumers does occur, not because of undefined market needs, but due to the consumer acceptance towards functional beverages.
Currently there is an increasing amount of advertising in the promotion of hydration. In 2008, Nestlé launched the sale of Glowelle, exclusively in Neiman Marcus. Antioxidant vitamins and fruit extracts are among the ingredient list that the company claims to "hydrate the inner and outer layer of the skin" and protect drinkers from free radicals.
Gatorade's Thirst Quencher offers a wide assortment of flavours each containing an "excellent source" (25% DV) of B vitamins (B3, B5, B6) to help meet the demands of energy metabolism; an "excellent source" (20% DV) of the antioxidant vitamin E to help protect the active body; an "excellent source" (20% DV) of vitamin C to help active people as they attack their day. In tandem with these adjustments, low-calorie G2 was also reformulated. Now it delivers significant nutrition enhancements by providing an "excellent source" (25% DV) of B vitamins (B3, B5, B6) and a "good source" (10% DV) of vitamins C and E, all of which help meet the nutrient needs of active individuals. Gatorade is well known for its hydrating qualities for athletes.
There is an increase in the presence of energy beverages by Red Bull, Adrenaline Rush, 180 and many others. These highly caffeinated, high-energy drinks have exploded on the beverage market in the United States, as well as globally and generated a whole new generation of copycat caloric or – in many cases – sweetened beverages.
According to the different brands of energy drinks, ingredients that serve as stimulants include: taurine, glucoronolactone, caffeine, and B vitamins, guarana, ginseng, ginkgo biloba, L-carnitine, sugars, antioxidants, yerba maté, creatine, milk thistle. Although these ingredients have been approved by the FDA, health experts still recommend consumers to read the label to make wiser choice of beverage since these ingredients may not be beneficial to one's health.
Health and wellness
Functional beverage companies are more aware of the ‘health conscious’ individuals and have introduced functional beverages with less sugar and therefore less calories. For example, Vitaminwater 10 contains only 10 calories per serving (25 calories for a 351mL bottle, 7.5 grams of sugar and 250% of daily allowance of Vitamin C). On the other hand, it has the same 25% of the daily allowance of Vitamins B3, B5, B6 & B12 as the original. Vitaminwater 10 has an all natural sweetener extracted from the stevia plant, which is a benefit in lowering calorie content (although taste is another matter) as well as fitting the product in the "natural" category.
With increased worries about obesity and its implications on health, combined with demand for convenience goods, consumers are naturally looking towards easy weight loss methods that they can easily integrate into their lifestyles. As such, functional beverages are striving to achieve that through addition of ingredients that promote weight loss.
Coca Cola and Nestlé have partnered to produce Enviga, one of the new ‘calorie-burning beverages.’ Skinny Water (owned by Skinny Nutritional Corp.) and Nutrisoda's Slenderized (owned by PepsiCo) have both used included a polyphenol called epigallocatechin gallate (EGCG) in their ingredient for their "metabolize boosting effect". With the increase in demand, ingredient manufacturer are now offering a 95% EGCG content product, a tea extract called "Blue California.". Some investigators report slimming actions induced by chlorogenic acids from green coffee, but further investigations need to be performed.
The dollar sales share on each of these sub-segments are: 28% (Hydration), 8.4% (Energy/Rejuvenation), 62.2% (Health and Wellness), 1.2%(Weight Management).
The consumer group is characterized as well educated, females, ages 35–55 belonging to upper middle, middle, and lower middle classes. This is due to their perceptions towards positive health beliefs, as well as a relatively high disposable income. Within the energy and stimulant drink sector, young adults aged 18 to 34 are considered to be the main target market, evidenced by high consumption rates. However, there could be potential downsides when companies rely too heavily on trends due to constant attitudinal differences of functional beverages across categories.
Health experts are concerned about the ready consumption of the rising functional beverage. As much as these beverages essentially still serve to hydrate the individual, they may not lessen or even address major health issues today such as obesity, heart disease, and cancer that are associated with the consumption of sweetened beverages, of which, most of these beverages are. This is because most of these drinks contain significant amounts of sugars and hence calories, which would add to discretionary and total caloric intake. As such, these ingredients pose health risks because of what they contain (sugar and caffeine) or what they replace in the diet (vitamin and mineral-rich foods).
Another set of concerns is that some functional beverages contain ingredients that have not been sufficiently studied for health benefits, safety, and dosage or have higher levels of a certain ingredient, like caffeine, a large amount of which is associated with heart disease and cancer.  Thus, consumption of these beverages might lead to undesired outcomes due to unforeseen interactions.
A 20 oz bottle of Glacéau's Vitaminwater has been reported to contain approximately 33g of sugar, which is similar to the sugar content of a can of coke. As such, such products may not be as healthy an alternative as other commonly consumed beverages. In addition, the sugar content of such beverages promote dental caries amongst frequent users.
In some particular functional drinks, particularly energy drinks, the caffeine content can be high, ranging from 0 to 141.1 milligrams per serving, of which an average 8-ounce cup of coffee contains about 133 mg of caffeine. There have been reports to Health Canada of adverse reactions involving energy drinks.
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