Functional beverage manufacturers are acknowledging consumer demand for natural and organic beverages by investing in product innovation, new flavors, balanced nutrients and environment-friendly packages, according to a report by Frost & Sullivan.
It states the segments to benefit the most from this rising preference for organic beverages are sugar-free energy drinks and fortified fruit juices.
The latter is especially popular in healthy diets due to its concentration of vitamins, minerals, and other beneficial micronutrients.
The report Analysis of the Functional Beverage Market in Australia and New Zealand, finds that the market earned revenues of US$1.6 billion in 2012 and estimates this to reach US$2.3 billion in 2017.
It covers the product segments of sports and energy drinks, enhanced bottle water, fortified fruit juices, functional soy beverages and others (ready-to-drink [RTD] tea, RTD coffee, and RTD vegetable juice).
The energy drinks segment is expected to lead through the use of healthier ingredients.
While Australia is projected to experience significant growth, New Zealand is likely to grow moderately.
Validating health claims
However, there is widespread skepticism regarding the health claims made by functional beverage manufacturers, as the benefits of some ingredients are not scientifically validated.
“Many functional beverages use health ingredients whose safety and dosage levels have not been checked, while some beverages have higher levels of a certain ingredients that could have an adverse effect on health,” said Chemicals, Materials & Food research analyst Yaqin Liu.
Market participants are also wary of the rising competition from private labels, as their competitive pricing strategy is causing price sensitivity among consumers.
Further, margins are shrinking due to the escalating operating costs incurred on ingredients, labor and land.
Improve productivity, educate consumers
Beverage manufacturers can attempt to widen their margins by improving the productivity of the plant, and reduce ingredient costs by nurturing alliances to obtain materials from all over the world.
They can further increase sales by educating consumers about the specific functions and benefits of their beverages.
“Clearly, product innovation is vital to thrive in this market. Manufacturers will gain a definite edge by establishing a strong pipeline to constantly introduce products and flavours.”
“Additionally, effective marketing campaigns, distributions channels, and pricing strategies will go a long way in boosting the market’s prospects.”
