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Functional beverages have become popular among people who want specific health benefits from their foods and beverages. Both convenience and health have been identified as important factors in consumers' decision-making about food and beverage purchases. Functional drinks are advertised as having various health benefits. For example, some claim to improve heart health, immunity, digestion, and joint health, while others promote themselves as satiating and energy-boosting.
The functional beverage industry is a subsector of the functional food and non-alcoholic beverage industry. It is the fastest-growing sector of the industry, partially due to the maturity of the carbonated soft drink sector and heavy investments by major food and beverage companies. Another reason for the industry's growth may be the consumer-oriented market scheme whereby innovative ideas come from consumers. By 2008, in the U.S., the market share of functional beverages accounted for 48.9% of the non-alcoholic industry, which is worth $118.3 billion.
In 2006, functional beverage consumption per capita[where?] rose to 66.4 gallons, while the carbonated soft drink sector saw a decline[when?] in per-capita consumption to 50.4 gallons (decreased from an average per-capita consumption of 192.5 gallons in 2006).
Functional beverage industry players are generally categorized into four types:
- Traditional non-alcoholic beverage companies, like PepsiCo, Fuze Beverage and Coca-Cola.
- Major food companies such as Nestlé, Altria Group, Kraft Foods, General Mills, and Campbell Soup.
- Smaller-scaled private companies, like SALOMED GmbH in Austria, and specialized companies like Traditional Medicinals and POM Wonderful.
- Growers' cooperatives, such as Ocean Spray and Sunsweet Growers.
The functional beverage industry encompasses a wide range of varieties targeting different health-related concerns. One trend has been toward hybrid drinks, which are marketed as having benefits like thirst-quenching ability, with daily dosages of vitamins or other nutrients. Another trend is the rise of probiotics, exemplified by Activia yogurt, marketed for intestinal and immune health. Other beverages, like Function BRAINIAC, a carambola punch energy drink in the Function Drinks line, advertise improved memory and mental sharpness. Functional drinks marketed to children have also been developed, and received attention with Nestlé's Boost.
A 2005 trend toward single-serve functional beverages was fueled by consumers' demands for convenience.[vague] 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."  Drinks marketed toward weight loss, health, and beauty (like Nova the Essential Drink) account for a considerable market share. Lastly, "energy-boosting" functional beverage products, such as Red Bull and 5-Hour Energy, have been rated fastest[when?] in growth in the functional beverage market.
During the current economic downturn, many products belonging to the specialty food category are expected to see reduced sales, because paying more for those specialty items is not an option for many consumers. These consumers also tend to shop in discount grocery stores and tend to make fewer grocery trips. Nevertheless, the functional beverage market is predicted to see an increase in growth. Among the reasons for the projected growth is that people generally reduce restaurant expenses first before cutting down on grocery expenses. In recent years, people have also become more concerned about, and proactive in, illness prevention. In the past, people tended to be reactive regarding health: health problems were treated after they developed. More recently, people have started to look for food products that they believe will prevent an illness from occurring.
The functional beverage industry generally competes using four primary strategies:
- Promote their own products as healthy and unique, by clearly distinguishing their health claims from similar products, and by specifying naturally healthy ingredients.
- Consider extensions of existing brand lines. For example, Nestle extended their Boost product line by adding Kids Essentials to the line, thereby extending the adult-focused Boost line to a new market (children).
- Larger companies compete for market share by acquiring smaller companies that may own a particular market sector. For example, Coca Cola purchased Glaceau from Energy Brands, and Odwalla and Fuze Beverage from their respective founders, in order to increase Coca-Cola's market share.
- Explore new functional brands by identifying new markets and demands.
Market segments of the functional beverage industry are divided mainly into 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 consumer acceptance of functional beverages.
Recently[when?], there has been an increase in the promotion of hydration drinks. For example, in 2008, Nestlé launched Glowelle, which it marketed as an exclusive hydration drink, sold only in Neiman Marcus stores. Among the drink's ingredient list were antioxidant vitamins and fruit extracts, which the company claims "hydrate the inner and outer layer of the skin" and protect drinkers from free radicals.
Gatorade has also created several drinks marketed as hydration beverages with various health benefits. Its "Thirst Quencher" drinks, according to advertisements, each contain an "excellent source" of various vitamins:
- 25% of the RDI of B vitamins (including vitamins B3, B5, and B6)
- 20% of the RDI of the antioxidant vitamin E;
- 20% of the RDI of vitamin C
In tandem with these adjustments, a low-calorie version called G2 was also reformulated. According to Gatorade, G2 now also provides:
- An "excellent source" (25% of the RDI) of B vitamins (including vitamins B3, B5, and B6)
- A "good source" (10% of the RDI) of vitamins C and E
Gatorade's new products are a good example of the first major strategy of competition, listed in the "Market" section above. By reformulating its products, Gatorade's goals were to promote their own new products as healthier, and to emphasize the healthy ingredients in the drinks.
Highly caffeinated, often highly sweetened "energy drinks" have become popular on the beverage market in the United States, as well as globally, in the past decade. Consumer demand has helped generate a new generation of "energy drink" brands containing similar amounts of caffeine, calories, and sugar.
Various stimulants found in energy drinks include taurine, glucoronolactone, caffeine, B vitamins, guarana, ginseng, ginkgo biloba, L-carnitine, sugars, antioxidants, yerba maté, creatine, and milk thistle. Although these ingredients have been approved by the FDA, health experts still recommend that consumers read their energy drinks' labels, as these ingredients may not be improve health.
Health and Wellness
"Health-conscious" individuals are among the target consumers of many functional beverage companies. To target these individuals, many companies have introduced functional beverages which contain less sugar, and therefore less calories.[improper synthesis?] For example, Vitaminwater 10 contains only 10 calories per serving (25 calories for a 351mL bottle, with 7.5 grams of sugar). An entire bottle also contains 250% of the RDI of vitamin C, and 25% of the RDI of vitamins B3, B5, B6 & B12. Vitaminwater 10 lowered its calorie content by using an all-natural sweetener extracted from the stevia plant. This also makes it possible for the company to advertise Vitaminwater 10 as "natural."
With increased worries about obesity and its implications on health, combined with consumer demand for convenience goods, consumer demand has increased for easy weight loss methods that can be easily integrated into daily lifestyles. Functional beverages are striving to market themselves as such, by adding ingredients that are claimed to promote weight loss.
- Coca Cola and Nestlé have partnered to produce Enviga, which they describe as a "calorie-burning beverage."
- Skinny Water (owned by Skinny Nutritional Corp.) and Nutrisoda's Slenderized (owned by PepsiCo) have both used a polyphenol called epigallocatechin gallate (EGCG) in their products for their "metabolize [sic] boosting effect".
- A tea extract called "Blue California," which has a 95% EGCG content, is now on the market.
As of 2008, based on dollar sales, the most popular functional beverages, in order, were:
- Health and wellness drinks, with 62.2% of dollar sales
- Hydration drinks (28%)
- Energy/Rejuvenation drinks (8.4%)
- Weight Management drinks (1.2%)
According to a 2006 article, the functional beverage market's consumer group is characterized as well-educated females aged 35–55, belonging to the upper middle, middle, and lower middle classes. This is thought to result from this group's perceptions that functional drinks produce positive health beliefs, as well as their relatively high disposable income. A 2002 article stated that within the energy and stimulant drink sector, young adults aged 18 to 34 are considered to be the main target market, as evidenced by high consumption rates. However, due to constant changes in attitudes about different types of functional beverages, these target markets could change.
Health experts are concerned about the increased consumption and popularity of functional beverages. Although these beverages may serve to hydrate the individual, they may not mitigate or even address today's major health issues, such as obesity, heart disease, and cancer. Most functional beverages are sweetened, and consumption of sweetened beverages is associated with higher levels of obesity and heart disease. 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. At the same time, many functional beverages have higher levels of a certain ingredient, like caffeine - which, when consumed in large amounts, is associated with heart disease and cancer. 
Many functional drinks have high levels of sugar, even if they have other "healthy" ingredients. For example, a 20oz bottle of Glacéau's Vitaminwater has been reported to contain approximately 33 g of sugar, which is similar to the sugar content of a can of Coca Cola. This prompted Coca-Cola to be sued for claiming that Vitaminwater was a healthy beverage.
Given their sugar content, many functional beverages may not be as healthy an alternative as other commonly consumed beverages. In addition, the sugar content of such beverages promotes dental cavities 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. This can be more than an average 8-ounce cup of coffee, which contains about 133 mg of caffeine. There have been reports to Health Canada of adverse reactions involving energy drinks.
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