US functional beverage growth slows: Mintel

Mintel said the $762m fortified waters category was the hardest hit, recording a eight percent decline from 2008 (but still up 267 percent on 2004).

Energy drinks had also seen a cooling in demand, but had been bolstered by the rise of energy shot drinks.

Mintel forecast the whole functional beverages sector would grow 19 percent in current prices and 7 percent in inflation-adjusted prices between 2009 and 2014.

Although growth in fortified waters and energy drinks had slowed a little, Mintel noted that segments, along with functional teas, had tripled in growth since 2004.

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“​​The sales downturn, which hit enhanced water harder than any other segment, was triggered by a convergence of negative factors, including growing concern over the high sugar content of many functional beverages, frugality motivated by the economic downturn, and a flood of new product activity that peaked in 2008 and has made choice in the beverage aisle even more complex just as more consumers are opting to cut back,”​ Mintel said.

Mintel includes $5bn worth of juice drinks and fruit juices in its $8.6bn figure, but noted high sugar levels and lack of on-pack information have crimped sales.

Yogurt drinks and smoothies dropped 10 percent in 2009, with only probiotic yogurt drinks showing growth.

Functional teas have also suffered a slowdown in sales as players have encroached on the niche area from the mainstream tea market.

Victim of its own success​

Indeed Mintel noted that the success of functional beverages means they have moved well beyond niche levels.

“​​The functional beverage category, through new product activity, line extensions, and the blurring of segment definitions, has created competition for itself,”​ Mintel witnessed.

“Consumers looking for specific benefits can choose from an increasingly broad selection of products in different functional beverage segments.”​

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But cost has become an issue, Mintel noted, “as consumers have reined in their spending during the recession.​”​

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“The high cost of functional beverages is also a factor regarding competition with functional foods and dietary supplements.​Both supplements and functional foods are less expensive than functional beverages. Also, many beverages, especially new-age beverages such as enhanced water, promise to provide essential nutrients that a multivitamin can provide much more economically. During the recession amid low consumer confidence and dwindling household wealth, a ‘cheap pill’ becomes much more appealing and affordable than purchasing a functional beverage which is five to ten times more expensive.”​

Mintel also found:

• 18-24 year-olds are more than twice as likely as over-65s to claim use of functional drinks
• Increased popularity has led to increased scrutiny of claims
• Coca-Cola and Pepsi have lost market share to single-brand companies such as Ocean Spray and Ferolito & Vultaggio
• New product development activity peaked in 2007 and 2008
• Only one third of functional beverage purchasers claim to have purchased them at least 21 times per month
• Fully two thirds of respondents to a survey think FDA should oversee the testing of functional foods and beverages to ensure they meet label claims