Trends Shaping the Functional Beverage Industry Outlook

The functional beverage market includes energy drinks, fortified juice, sports drinks, and dairy. And dairy alternative beverages. Also included in this category are enhanced water products, ready-to-drink tea, and coffee. From 2019-2024 the global functional beverage market is predicted to grow at a Compound Annual Growth Rate of 8.66%.

Increasing health awareness among the young population drives a move from fruit juices and carbonated drinks to functional beverages. Additionally, consumers have demonstrated that they are willing to pay higher prices to gain the advantages associated with these drinks.

Top 10 Trends

Coronavirus Driving Increase in Demand for Functional Beverages

The pandemic has accelerated an already growing trend of health awareness in the public. People are looking for food and beverages that can boost immunity and decrease the chances of contracting the virus. The pandemic has accelerated the substitution of sugary drinks and soft drinks with functional beverages to curb the effects of COVID-19.
Even with the increased demand for functional beverages, the market is expected to decline by 2.5% this year. The economic slowdown and social distancing measures are constraining economic activity.

Broadening Range of Functional Applications

In addition to beverages that deliver digestive health benefits and boost energy, an increasingly growing market delivers mood-boosting and relaxation benefits. Among the middle-aged and elderly, functional beverages that promote cognitive health are on the rise. Additionally, stress and sleep-functional drinks have increased in popularity.

The increasing range of functional beverages will advance the market scope and lead to more research and development opportunities. Specifically, companies are looking for ingredient combinations that maximize health and mental benefits.

Experimentation with New Ingredients

With the broadening range of functional applications being sought by consumers, suppliers are looking to utilize new ingredients that better meet the functional goals of consumers. In the sports drink field, suppliers are expanding their choice of ingredients to enhance sports nutrition benefits. Drinks with creatines and branch-chained amino acids are growing in popularity.

Additionally, drinks that boost cognitive health and energy experiment with ingredients such as CBD, collagen, and adaptogens. These ingredients are popular among millennials, although the use of these ingredients will likely spur a movement to go back to the basic vitamins and minerals.

Energy Drinks Moving Beyond Caffeine

Although caffeine is still widely used in energy drinks, more people are becoming aware of the possible negative effects. Consumers seek to avoid the crash associated with caffeine and potential disruptions to sleeping patterns.

Therefore, using L-theanine has experienced an uptick in the energy drink field. Consumers say the amino acid provides a sustained energy boost and cognitive benefits without caffeine’s sudden crash. Innovation in the energy drink field and research into caffeine alternatives will likely continue.

Experimentation with Nootropics in Cognitive Health Drinks

Cognitive health drinks are rapidly seeking to incorporate new ingredients, such as nootropics, into their products. Nootropics refer to ingredients that enhance mental health, including memory, clarity, and creativity.

This includes antioxidant botanical ingredients such as green tea and yerba mate that are popular in the younger demographic. It also includes adaptogenic herbs that boost energy and mood, including ginseng and Schisandra. Research and incorporation of nootropics is another trend to watch in the coming year.

Increasing Demand for Healthy Hydration Drinks

Functional beverages such as ready-to-drink tea (RTD) are healthy hydration drinks. While providing refreshment and stimulating benefits, it does not have the possible detrimental effects of coffee that could make someone jittery or crash. These drinks are organoleptic, stimulating the sense of smell, sight, and taste.

Young consumers are a developing market for healthy hydration products who like their convenience and see it as a viable alternative to traditional soft drinks. Another healthy hydration product that is growing in popularity is enhanced water. Suppliers can expect the demand for healthy hydration to grow in the coming year.

More Distribution Channels

The distribution channels for the functional beverage market have been segmented into supermarkets, departmental stores, health stores, and online stores. Functional beverages were a novelty in the past, and consumers liked to buy in person.

The pandemic has increased the visibility of functional beverages, especially in online stores and health store websites. The pandemic is expected to accelerate the online market for functional drinks as consumers become accustomed to buying their products online. Social distancing guidelines will likely remain in effect, so online sales are expected to remain high.

North America Expected to Retain Major Market Share

North America has the largest market share in the global functional beverages market and will hold that position. There is already high awareness of the health benefits of functional beverages, and there is high demand across the region. Additionally, there is a growth in functional RTF beverage manufacturers in countries such as the U.S.

Other regions expected to register growth include Europe and Asia, with increasing demand and rising health consciousness. In Asia, an increasing per capita income is expected to increase significantly to growth.

Women Remain Under Targeted

Although women are more likely to purchase functional beverages for spouses and children, they remain an under-targeted market. Moms purchase functional beverages for their children and are likelier to practice healthy lifestyles than men.

However, there is still a lack of products specifically targeting women with calcium deprivation issues. Additionally, energy drinks are still advertised to men, although there is a fast-growing subset of female consumers.

Expansion for Plant-Based Options

Hydration beverages are increasingly incorporating more plant-based ingredients into their products. The availability of plant-based waters, including pressed lettuce water and sweet potato water, is increasing.

Established beverage giants are innovating to combine their previous successful products with plant-sourced electrolytes and juice to provide enhanced products to consumers.

Functional Beverage Industry Stats and Growth Projections

Brain health is the fastest-growing functional claim in all U.S. beverages.

This speaks to the growing awareness of maintaining cognitive health when aging. The use of nootropics and MCT oil in mental health drinks will expand in the coming year. Suppliers should seek to incorporate these drinks into their inventory to meet growing consumer demand.

24% of consumers say they eat or drink products that contain probiotics

Awareness of digestive health is another important trend to watch in the coming year. Consumers are turning to drinks with pre-and postbiotics that help fortify their gut health. Drinks that incorporate both prebiotics and probiotics are increasing in popularity. Drinks that contain fiber are also adding to the promotion of digestive health.

34% of 18-24 year-olds consume energy drinks regularly

Although consumers are becoming more aware of the possible negative effects of caffeine in energy drinks, they remain popular with the young demographic. The energy drink industry is rapidly innovating, incorporating antioxidants, amino acids, and natural ingredients to supplement the demand for caffeine.

The functional beverages market is expected to decrease from $128.66 billion to $125.39 billion.

Even with increased consumer demand for functional drinks, lockdowns and social distancing norms resulting from the pandemic have harmed the industry’s growth rate. However, with optimism over developing a vaccine in the coming year, the increased awareness and demand for functional beverages are expected to translate into more sales.

The functional beverages market is expected to grow by 8.07%

This points to an unexpected recovery and growth in the market for functional beverages. Surveys have found that most people say that their health consciousness has increased significantly due to the COVID-19 pandemic and that they plan to change their diets. People also said that being confined to their homes made them more conscious of weight management and sugar intake.

The top ten companies in the functional beverage industry account for 50% of the market share.

This statistic shows that the functional beverage industry remains highly concentrated despite high growth potential. The leading players in the market, such as Nestle and PepsiCo, dominate the current market. [Source]

The global market size of digestive health products is more than five times that of the market for brain health products.

This points to the massive potential for the cognitive health functional beverage market. Although there is an increasing demand for these products, the market has seen the level of investment that digestive health products such as kombucha have experienced.

Research suggests that vitamin C and omega three are most associated with immune health.

While traditional ingredients and vitamins are still at the forefront of the functional beverage industry, consumers are becoming more receptive to other components. Millennials are seeking CBD and amino acids in their functional beverages.

The share of packaged products focused on health and wellness grew by 1.8% globally.

The share of health products available to consumers is rapidly increasing, which bodes well for the functional beverage industry. People are becoming more receptive to drinks that can provide various health benefits.