Functional beverages claim to offer health and lifestyle benefits that consumers find valuable, such as increased energy, enhanced hydration, improved cognitive function, better sleep, boosted immunity, enhanced gut health, weight management, and improved sports performance.
Functional beverages contain added ingredients that promote overall health or target specific health functions. These products are appealing to those who want to make small changes for big results. Functional beverages often feature “better-for-you” traits such as clean labels, natural/organic ingredients, reduced or eliminated sugar and calories, and vegan/plant-based designations.
Appeal of Functional Beverages and Recent Historical Trends Affecting Sales
According to Packaged Facts’ new July 2023 report Functional Beverages: Market Trends and Opportunities, 2nd Edition
, 38% of adult consumers agree that they purposefully seek out beverages with ingredients that are designed to or claim to improve overall health or specific body functions, while 41% are willing to pay more for these functional beverages. Though some functional beverages are more niche than the most popular category of sports and energy drinks, there is clearly strong appeal for beverages with functional ingredients.
The COVID-19 pandemic changed many aspects of consumer behavior and daily life, with more people who were looking to improve their health to prevent – or otherwise lessen the severity of – illness. Consumers have been concerned about their own health and the health of others, which caused some consumers to buy food and beverage products thought to boost immunity or otherwise improve health because they believe in the concept of “food as medicine.” For some, the pandemic inspired more focus on healthy living in general – regular exercise, more whole foods, etc. – and not just susceptibility to illness.
The whole grocery market experienced faster than average growth during the pandemic since people were staying at home more than usual due to remote work and schooling. Additionally, high inflation has led to significant price increases for food and beverage products, particularly in 2022. Functional beverages were no exception and posted especially fast gains in 2020, 2021, and 2022 due to the above factors as well as new product introductions and increased consumer awareness and adoption during that time.
Future Sales Prospects for Functional Beverages
Packaged Facts forecasts that advances in the functional beverage market will continue through 2027, with new product introductions and innovations key to growth. New releases will give consumers more types of products to choose from (including new flavors, formats, or attributes). Adoption will continue to expand as awareness of functional ingredients and availability of functional beverages grow. While growth will slow from the pandemic period (when sales were increasing off of a much smaller base), this change represents continued gains. Sales will be about 28% greater in 2027 than in 2023.
The most important factor in growth of consumer adoption is taste. Good taste is core to people buying functional beverages again after initially trying them (and the factor that consumers rate most important to their food and beverage choices, above price). Ongoing product innovations increasingly include improvements to taste/mouthfeel as well as more flavor options to interest consumers.
Reducing or Eliminating Added Sugars
Many beverage producers are reducing or eliminating added sugar content to make their products healthier. Some prevalent beverage brands (especially in the energy and sports drink, juice, ready-to-drink tea and coffee, and carbonated soft drink categories) are perceived as unhealthy due to added sugar/sweetener and lack of nutritional value, whereas other functional beverages such as enhanced waters, nutritional shakes, and probiotic yogurt drinks have a healthier perception.
Younger people are often less concerned about their health and are open to more sugar and other ingredients that older consumers may avoid or cut back on. According to Packaged Facts’ latest report on the functional beverage market, more recent developments in functional beverages target a slightly older, more health-conscious demographic with products that have less sugar content and more ingredients with healthier perceptions. Using alternative sweeteners can eliminate added sugars while maintaining a flavor that consumers expect.
Some popular special diets – such as paleo, Atkins, and keto – also prescribe lower carb intake and less or no consumption of added sugars. Because sugar consumption has been linked to obesity, many consumers are cutting back on sugar for weight loss or weight management. Other health concerns necessitate cutting back on sweet beverages, such as diabetes (which affects about 10% of the US population and one in four people over the age of 65).
The use of more natural alternative sweeteners such as monk fruit and stevia instead of artificial sweeteners such as aspartame, saccharin, and sucralose are also improving the taste and health perception of sugar free and lower sugar functional beverages. This increases the appeal of sugar free drinks among health-conscious consumers.
It is worth noting that in February 2023, a study was published
that indicated people with high levels of erythritol in their blood were at increased risk for blood clots, stroke, heart attack, and death. Erythritol is a zero-calorie sweetener that is often paired with other alternative sweeteners, such as stevia and monk fruit, in beverages with no sugar added.
Consumers may be wary about the health risk of erythritol if they see news about this study, though the ingredient has been approved by regulatory agencies around the world. Decades of previous scientific research have shown that reduced-calorie sweeteners such as erythritol are safe for consumption, so it is unknown if this latest study has revealed a previously unknown risk or if there may have been problems with the study’s setup or conclusions. If consumers become more concerned about erythritol, manufacturers may reduce its use in beverages and look for other formulations that do not appear to increase health risks.
Beverage Products That Target Gamers
Gaming has a young demographic, and participants have special needs and wants in terms of food and beverages, including products that enhance and elevate mental and physical performance and deliver functional attributes such as hydration, energy, sustained nutrition, mental acuity, focus, mood elevation, and stress reduction. Marketers are increasingly designing beverages with these attributes and creating brands that resonate with this audience.
Gamer culture has risen in recent years, especially during the pandemic as people stayed at home more, and people were able to pursue more at-home hobbies (including socialization via the internet). More consumers have taken up gaming as a sport pursuit, and additionally, more viewers have begun to take gamers seriously on a competitive level and tuned in to gaming competitions and livestreams (such as those regularly present on Twitch, an interactive livestreaming service).
Functional beverages are moving from customers just looking for energy drinks to stay awake (which is still a big market for functional beverages) to cognitive function, focus, and mental recovery as gamers look to get an edge in their performance. Beverages targeting gamers may be marketed to both casual gamers who play for fun and to hardcore hobbyists or professional gamers who play in competitions. Esports are becoming more popular for young people to watch and be interested in, so they can be drawn to products used by or promoted by professional gamers and influencers, even if they do not game a lot themselves.
Many functional beverage products have been released recently to specifically target the gamer market. For instance, Prime Hydration sports drinks were launched by Logan Paul and KSI (both YouTube influencers and boxers) in 2022
, with high demand leading the products to sell out online within hours of their release. These products are designed to “refresh, replenish and refuel” gamers with ingredients such as hydrating coconut water and electrolytes, BCAAs to aid in muscle recovery, and antioxidants and vitamins to further prevent dehydration. The brand expanded into energy drinks in 2023 with Prime Energy.
Perception of Caffeine
The most recent news about Prime Energy is that Senate Majority Leader Chuck Schumer is urging the Food and Drug Administration (FDA) to investigate the products due to their “eye-popping” amount of caffeine (200 mg per can)
. Prime Energy’s high caffeine content has led to controversy since minors appear to be key users of these products, though Prime’s website
specifies that its energy drinks are made for adults age 18 and up. According to the FDA, people age 11 and under should not consume caffeine, while those age 12 to 17 should have less than 100 mg of caffeine per day.
However, the young adult gamers who are explicitly targeted by Prime Energy tend to want the high levels of caffeine present in these drinks. Up to 400 mg of caffeine consumed in a day is not generally associated with dangerous or negative effects for healthy adults.
Prime Energy is not alone in the energy drink space for drawing concerns about its caffeine content. The caffeine content in Prime Energy matches caffeine found in servings of other popular energy drink brands such as 5-hour Energy and Ghost. Young adults who are primary users of energy drinks (particularly those age 18-24) are less likely to be worried about caffeine or its potential health effects and more likely to tolerate larger amounts of caffeine, so high caffeine drinks are often sought out by them.
In contrast, as consumers get older, they are more likely to want energy drink options with less caffeine. Many people are sensitive to caffeine and do not want to consume it in large amounts. New energy drink brands are more likely to target an older or more health-conscious consumer with lower caffeine content, natural caffeine, or ingredients that serve as alternatives to caffeine. Some of these energy drink brands market their functional beverages as “jitter-free”, a “clean” source of energy, or “natural” to distance themselves from energy drinks that are associated with an energy crash or other negative effects.
Additional analysis of the functional beverage market can be found in the July 2023 Packaged Facts report Functional Beverages: Market Trends and Opportunities, 2nd Edition
About the blogger
Cara Rasch is a food and beverage analyst for Packaged Facts. She studies consumer and industry trends in this space and has a B.A. in economics from Allegheny College.