The functional beverage market is defying the odds and growing at a healthy pace. North America has spearheaded functional drinks growth, gaining a 41 per cent share in 2008. Beverage industry expert Jim Tonkin pours out his thoughts on why this sparkling category is still in the black during a red economy.
FI: In the beginning, the genesis of the functional beverage industry was led by a few key players. What caught your attention during the early years of this new trend in functional beverages?
JT: Originally when the folks like me started looking at the horizon and looking up at the next cliff that would mark a new trend, there were a host of new age beverages such as Arizona Tea and Sobe that had the essence of functionality but they were high in sugar. From a consumer standpoint they stood out among the traditional carbonated beverages. I looked at those products as scamp in terms of benefits. They used marketing, cute phraseology and romance language about why they were good for you. And in hindsight, they did look good compared to Coke. They pushed the envelope at the time, which moved them over that red line of popularity and profitability.
Then the real functional food and beverage market was born. It started with vitamin enhanced cereals. Until then, not everyone realized that cereals didn't naturally have high levels of certain vitamins. Cereals marked the threshold for consumer acceptability of functional foods. And large scale consumer packaged goods companies found a way for consumers to run to it and accept the concept of a functional food with a food most were very comfortable. This idea then transferred from cereals to the world of cola, un-cola and to noncarbonated, functional, new-age world drinks.
FI: What is driving this trend now?
JT: There is an interesting dichotomy in the population. On one end, teens and tweens, followed by a substantial number of Gen X and Gen Y (20-49), which is bookended by boomers and even octogenarians. All are interested in health, but for different reasons. At the end of the day, when you couple that with the electronic age, the sharing information and the availability of information, the healthy beverage category is in tune with the buying populace.
If we start with the older generation, boomers and octogenarians want to live a healthy lifestyle and are willing to take anything to maintain a higher quality of life. Even with the tough economy, they are interested in products for gut health, joint care and cardiovascular benefits. The older population is asking for food and beverage that is better for them.
Then there is the coffee explosion from the Gen X and Y group, which is perhaps the ultimate and first born functional beverage. It gets a desired response, wakes you up and carries you on. This is what ultimately spurred the energy drink category. In addition, they are asking for products that make you look and feel better. What does coke or Pepsi do for you—absolutely nothing.
The other functional beverage that started it off was water, specifically bottled water. It is the ultimate functional beverage for hydrating purposes, whether domestic, spring, purified or flavored. And because water is such a good carrier, it's possible to figure out how to make water even better for you by adding flavour, color and texture.
FI: Beverages are on the hip side of marketing. What's up with that?
JT: Consumer package goods companies including many Fortune 500 food and beverage companies have found a way to get products sold. They use good R&D, develop products with efficacious or close to efficacious dosage with a marketing message that connects with people.
It started with Mountain Dew and extreme sports followed by Red Bull. The marketing brought these beverages to where people, work, sleep and entertain. There is a cool factor. It's all about lifestyle marketing. It builds brands, gets loyalty and ultimately repurchasing marketing gets into consumer's backyards, twitter, social networking, viral marketing through YouTube. A product can become an overnight success with the help of subset of consumer groups.
The other shift over the years is the relevancy of the beverage market. Marketers are taking the time to find out, is the product is relevant? It used to be that marketing would create a perceived need. This was a waste of time and resources.
One sector that has taken full advantage of this concept is coconut water. It is strongly influenced by the international market. Coconut water used to be only available in Brazil in tetra packs or canned. With canned there was no potassium left in the finished product. But with aseptic packaging, the health and functional benefits survived. Thus green coconut is one of nature's perfect sports drinks with 600-plus mg of potassium.
FI: What's coming?
JT: Condition Specific. Over the last two years the focus has been heavily targeted toward condition specific foods and beverages. There is a smattering in joint health, cholesterol lowering, diabetes and weight loss. Now we see athletic muscle recovery, protein delivery, weekend warriors or professional athletes.
In the future, I think we will see efficacious dosage and delivery of ingredients for eye health, probiotics, prebiotics, circulatory health, blood pressure and cholesterol lowering. As well as combo products, which are gender and age specific such as men's and women's products with multiple ingredients for different life stages.
Lastly, beauty from within will be the next beverage growth sector. Many people are willing to do anything to make themselves look better. People want introductory products that will deliver benefits for the average person — not just the skinny models who walk down the runway.
Jim Tonkin is the track chair for the Nutracon's Sweetener seminar series and the president of Healthy Brand Partners. Over his 33-year career, he created and implemented successful business, financial, and marketing strategies for domestic and international corporations including food and beverage production, manufacturing, sales, marketing, and distribution. Tonkin worked with companies including Stroh's Brewery, Sun Orchard Inc, Geyser Products LLC, Seven-Up Company of Southern California, POKKA Corporation (Japan, USA), Natural Waters of Viti Ltd. (Fiji Natural Artesian Water), Canadian Natural Glacier Water, Hawaiian Natural Water Company, American Beverage Control, Electronic Dispensers International, and Global Water Technologies. Tonkin has lead two functional beverage companies over the last 6 years as president and CEO: Bio Essentials, makers of Motion Potion, a Glucosamine beverage for joint health, and Essentia Water, Inc., electrolyte-enhanced bottled water sold mostly in the health segment nationally. Tonkin also created Hound Hydrators Pet Water for PETsMART. Jim's expertise in developing national infrastructure to produce, distribute and market beverages continues to be his passion, and at the heart of his practice today.