BevNET Magazine
FUNCTIONAL BEVERAGES AS THE next frontier? Until recently there seemed little reason to question that premise. After all, if drinks like Fuze and vitaminwater could do so well by giving the impression of offering a functional lift, then imagine how high the potential might be for brands that actually delivered meaningful amounts of functional fortification. But so far, that bet hasn’t paid off.
In the past couple of years, some visible early entrants have struggled. A deep recession arrived, the government began to crack down on beverage companies’ health claims, and consumers – well, I get the sense that they’re probably spending their Internet time on job listing boards and trolling for grocery coupons rather than heading over to the Web site of functional beverage brands to learn the definitions of “chondroitin” or “quercetin.” That, or they may be buying into the whole-food, anti-engineered “phood” precepts espoused by commentators like Michael Pollan. I also can’t help but wonder whether a more pervasive anger and cynicism, bred by revelations of the glaring shortcomings of bankers, stockbrokers, realtors, politicians and government regulators hasn’t injected a fundamental skepticism about sweeping promises from anybody, let alone an elixir in a bottle.
I have no formal research to back up this hunch: no focus groups, no surveys, no Whole Foods shopper intercepts. It’s just a nagging feeling I’ve culled from conversations with friends and neighbors, beverage distributors and retailers. But also, look at what new beverage items do seem to be selling these days: many are in tried-and-true categories that may lack any cutting-edge mystique, but fulfill basic urges in terms of refreshment, hydration and the like. They include newer shelf-stable versions of such iconic refrigerated brands as Sunny Delight and Nesquik. King Juice’s Calypso brand of lemonade is also soaring – considering that the populace is supposed to be spooked at ingesting lots of calories through its drinks, I’m somewhat amazed — but it tastes great, the glass bottle feels great in your hand, the range of flavors can make you forget it’s all just lemonade and you certainly don’t have to go to a Web site to understand it. Teas, like AriZona Iced Tea and its various spinoffs, and the canned Xingtea line also seem to be striking a chord: tea, while overcrowded, is an understandable drink with perhaps some modest health benefits and an accessible taste that makes it a good transition from the carbonated soft drinks some consumers feel they should be abandoning.
Many of these are relatively inexpensive brands, but I think the phenomenon goes beyond trading down. After all, some categories of beverages with high price points but clear value in their ingredients and packaging continue to hold their own, from energy drinks to some of the superfruit juice categories. So it can’t all be a question of price.
Knowing the above, am I totally down on functional drinks? Not at all, but it may take a while for them to reach their promise. The company that hoped to serve as poster child for the segment, Function Drinks, has regrouped after a wildly ambitious initial plan misfired and is trying to grind it out on the way to some kind of broader acceptance. Newer lines like the cap-activated Activate and the curvy-bottle Neuro continue to attract distributor and retailer attention. FRS is striving to move beyond being an Internet play, and establish a fuller consumer understanding of just what the brand is, as well as its active ingredient quercetin. Celsius has outlasted the misconceived Enviga line from a Coke-Nestle partnership and continues to push toward mainstream acceptance (albeit after a shift in emphasis to fitness assistance rather than calorie burning).
So is the flourishing of functional beverages right on the horizon? I’m inclined to believe that if you’re a wholesaler or retailer, you should be experimenting with some functional entries, but don’t overcommit. Given the degree of consumer skepticism out there, it’s probably best to emphasize segments that allow consumers to judge for themselves in a reasonable timeframe whether they work – energy, joint health, maybe mental focus, but not necessarily anti-aging. I’m not convinced relaxation is for real as a category; maybe something more narrowly defined, like sleep aid, will work better.
I’d go easy on brands that seem to overreach in their claims. You probably should also be cautious about picking up too many brands that need to have a supplement rather than nutrition panel affixed to the label; government regulators are looking at those with a gimlet eye. And – in a lesson that it took a while for Function, among others, to learn – don’t assume consumers will be willing to sacrifice flavor for the promise of a functional benefit.
I’ve focused here on smaller, independent players, because that’s where most breakthrough brands tend to get launched. That’s not to dismiss the beverage giants (and their pharma brethren) who maintain extensive research capabilities and are seeking genuine functional and nutritional breakthroughs. They’ve always had extensive R&D but have misfired repeatedly nevertheless: both with consumers and, as the Enviga snafu or Danone’s headaches on the probiotic side would attest, with even the mundane regulatory stuff you’d expect them not to fumble. Still, this is one category where they should have every advantage. Maybe they’ll be the ones to show the way. We’ll see what they come up with next.
Longtime beverage-watcher Gerry Khermouch is executive editor of Beverage Business Insights, a twice-weekly e-newsletter covering the nonalcoholic beverage sector.
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