Healthy Beverages in 2021: Functional Benefits and the Importance of Better-For-You Drinks
Howard Telford, Head of Soft Drinks Research, Euromonitor International
The beverages industry, as with most areas of consumer goods, retail, and our wider society, has experienced the most tumultuous year that anyone can remember. According to Euromonitor International, total volume growth across all channels tracked was down 3% globally in 2020. While this may not sound like a lot, this is a significant figure in an industry where some degree of volume growth continued even during the Great Recession of 2008-2009.
On-premise, generally away-from-home soft drinks volume in restaurants, bars, or elsewhere in foodservice, bore the brunt of this disruption. On-trade volume was down a staggering 26% globally. On-trade channels represented about 18% of global soft drinks volume in 2019, excluding fountain sales. In some European markets, such as Spain, these channels can represent up to half of total volume and a much higher percentage of revenue. This high-margin business simply disappeared for a large portion of 2020 in those markets most affected by the COVID-19 pandemic and consequent mobility restrictions.
One key facet of the long-term recovery in global non-alcoholic drinks will be the importance consumers now place on functional drinks and healthy living. If refreshment is the primary source of volume within soft drinks, it is functionality — defined as beverages that move beyond their basic nutritional value or taste to address a need state or benefit territory — that has been the primary source of value creation in the beverages industry over the last two decades.
Functionality begins with energy — particularly caffeine — in energy drinks or the coffee category, which is growing in both packaged and RTD formats. It also extends to sports hydration, where the US and Western Europe have seen consistent growth in sports drinks, athletic nutrition, pre-workout and recovery. But why might functionality, wellness and the priority placed on healthy living matter more moving forward than it did prior to the pandemic? In short, we know the consumer’s notion of health and wellness is constantly changing, not just in terms of the soft drinks industry, but across food and supplements as well. The daily routines and health regimens of consumers have been — and continue to be — adjusted and reset.
Over the last year, many of us can point to a meal occasion today that did not exist in our routine 12 months ago — perhaps a food, vitamin or packaged drink that we’ve added to our diet or removed. Some of these changes may enter the new routine on a permanent basis. Changes in routine have moved some meal and beverage occasions into the home on a full-time and perhaps permanent basis as more work-from-home arrangements turn into permanent flexible working schedules.
There are also new demands on our wellbeing as a result of the pandemic. Reported stress, anxiety and insomnia have all increased, according to recent surveys. There has been no lessening of demands on productivity, with many people working longer or more irregular hours, particularly stay-at-home parents during lockdown. Food, beverages, nutrition and functional ingredients play a vital role in the wellness routines we have built to manage our lives.
The expanding functional territories for beverages include continued growth in caffeinated drinks and the introduction of new caffeine alternatives. They also include reduced sugar, natural alternatives, and increased consumption of packaged, flavoured sparkling water. Finally, this expanding territory for functional drinks also means supporting immune health and digestive health in new ways. Finding success in these new territories will require accessible refreshment flavours and mainstream branding.
Olipop, for instance, is a US brand positioned as a prebiotic tonic containing as much as a third or more of dietary fibre from chicory and other soluble root fibres. But the brand, resembling a canned seltzer, maintains very accessible flavours similar to a sparkling drink. Similarly, brewer Molson Coors — in partnership with the LA Libations incubator in the US — introduced Huzzah, a flavoured, non-alcoholic seltzer that contains probiotic strains. The product is low-calorie, naturally sweetened, and marketed in interesting fruit flavour combinations, certainly resembling more of an everyday refreshment than a health and wellness tonic.
Another example is Imuse, a brand of probiotic drinks and yogurt from Kirin in Japan that contains the only lactic acid bacteria Japanese regulators have approved to make immune function support claims — again, linking the digestive health space and immune support with a powerful on-pack claim. Immune support and digestive health are two sides of the same coin, and both are very important in the near term considering how consumers are thinking about their nutrition.
Another fruitful area of functional innovation in beverages are products and ingredients to relieve stress, manage moods and promote sleep. These are allied benefit territories that brands are attempting to address, and beverages are a preferred format over pills and potentially harmful alternative formats.
For instance, PepsiCo launched Driftwell in 2021, a canned “enhanced” water beverage. Driftwell is a still, functional water drink containing L-Theanine to promote relaxation and sleep. This represents the company’s first foray into the relaxation drinks space in the U.S., followed by Soulboost in May. In the same benefit space is Recess, a brand with an expertly crafted social media presence in the US. The product is a sparkling water with adaptogens (ginseng), l-theanine and CBD from hemp extract. The product, brand and online presence of Recess is built around the notion of relaxation, promoting calm as well as focus.
As we look ahead to the rest of the year, we expect continued growth in the resilient energy drinks category. But this growth will be increasingly diffused across product categories, ingredients and flavours, and these products will now reach a wider audience. This may include focus and cognition products, with ingredients for brain health and “nootropic” beverages, as well as plant-based sources of energy like yerba mate and guayusa.
Functional beverages remain a primary source of value growth in the global non-alcoholic drinks industry. As we hope for recovery this summer and into 2022, the ability to capitalise on new routines being formed and the “great reset” in consumer routines will go a long way in determining the strength of the industry’s recovery and ultimate success on the shelf.