Source: Worker’s Daily

The functional beverage market see good potential in the beverage industry. In mid-August, Coca-Cola announced that it has invested in a functional beverage brand called BodyArmor, which is a functional beverage brand that Coca-Cola re-harvested after Aquarius. For Coca-Cola, which is declining in sales and constantly seeking healthier product, its strategic layout for expanding the functional beverage market has become clearer.

In China, functional drinks are also entering a golden age. In recent years, with the increase of national health awareness and the increase in sports consumption expenditure, the functional beverage market has developed rapidly, with market size of more than 40 billion Yuan in 2017. The good development of the market has also attracted many manufacturers to enter, and the industry is fiercely competitive.

Carbonated drinks are losing popularity

At present, the concept of health is permeating people's lives, and the lifestyle of consumers has changed.

In this situation, Coca-Cola with the name "happy water for fat otaku" is getting less and less popular due to high sugar and high calorie content.

The traditional sugar-sweetened carbonated beverage market is getting worse. According to the financial report, the sales performance of Coca-Cola and Pepsi-Cola continuously declined from 2014 to 2017. In 2017, revenues of the 2 companies were 35.41 billion Yuan and 63.525 billion Yuan respectively. For the 2017 net profit, the former fell 81% to 1.283 billion US dollars, while the latter fell 23% to 4.908 billion US dollars.

More and more healthy, low-calorie and artificial ingredient free beverages have entered the market, and a focus on health and sensory experience has become a trend in the beverage industry.

In the carbonated beverage market, Coca-Cola launched new products of “Sugar-Free, Zero Calorie” such as Coke Zero; PepsiCo launched two sugar-free products, Pepsi Light and Pepsi Max. In June of this year, China's drinking water giant Nongfu Spring launched a new "bubble tea" to reach out to the field of carbonated beverages. "Bubble tea" uses tea and fruit juice to remove the high sugar content, which is the most criticized problem of carbonated drinks.

The rise of healthy eating concept has also accelerated the transformation of the two traditional carbonated beverages giants - Coca-Cola and Pepsi. In mid-August this year, Coca-Cola formed a strategic alliance with American sports drink company BodyArmor to further expand the functional beverage market. Shortly thereafter, Pepsi announced that it would acquire SodaStream, the global leader in soda water, for $3.2 billion, trying to add to the transformation of the healthy beverage market.

Rising of functional drinks

After more than two hours of training, Zhang Yu, a fitness enthusiast walked out of the gym. He was sweaty, tired and thirsty, and was eager to drink something.

There are plenty type of drinks that can be selected by Zhang Yu: mineral water, tea drinks, carbonated drinks, fruit and vegetable juice drinks, and functional drinks such as Red Bull, Mizone, Gatorade, and Pocari Sweat. Finally, Zhang Yu bought a bottle of Mizone. “In the past, I used to drink carbonated drinks such as coke and sprite. Now I know that functional drinks are more conducive to recovery after exercise.”

Zhang Yu's choice also reflects the changing trend of the beverage market in recent years: functional beverages are rapidly emerging, gaining popularity, and bringing more and more attractive opportunities to the beverage industry.

A functional beverage is a beverage that regulates the function of the human body to a certain extent by adjusting the composition and content ratio of the nutrients in the beverage.

According to relevant information, functional beverages are healthy drinks that have gradually become popular in developed countries such as Europe, America and Japan since 2000. It is mainly divided into types such as nutrient drinks containing dietary fiber, vitamins and minerals, sports drinks that can adapt to the sports-physical characteristics and special nutritional needs of athletes or people who participate in sports and exercises; special-purpose beverages containing probiotics, immune-enhancing ingredients and low-energy drinks suitable for obese people, and etc.

According to public data, from 2011 to 2017, the annual compound growth rate of China's functional beverage retail sales reached 17.1%, and the annual compound growth rate of functional beverage retail sales reached 12.35%. By the end of 2017, the retail sale of functional beverages in China has exceeded 40 billion Yuan, reaching 41.52 billion Yuan, and the retail sales have increased to 12.783 billion liters. It is estimated that the retail sales of functional beverages in China will exceed 45 billion Yuan in 2018.

From the perspective of the global functional beverage market, the scale shows a rapid growth, with an average annual growth rate of more than 10%. Compared with developed countries in the world, the per capita consumption of functional beverages in China is only 0.5 kilograms per year. There is still a large space for consumption, considering the world average figure of 7 kilograms per capita. Therefore, China's functional beverage market has great potential.

According to industry experts, from the initial niche market to a 10 billion Yuan market, the drinking scene of functional beverages is expanding from supplementing energy to dining, gathering, working, learning, driving and other scenarios. Functional beverages have become a new growth point in China’s domestic beverage market.

Increasing incoming players

The market with great development potential has attracted many new comers, and the competition in the functional beverage market is increasingly fierce.

The data shows that at present in China, functional beverages account for nearly 13% of the total beverage market, and there are more than 150 types of products. Almost all beverage giants have a functional beverage product line. Among the many brands, Red Bull still rules the market. Old-fashioned functional beverages such as Mizone, Gatorade, and Pocari Sweat have remained stable, and brands such as HiTiger and Dongpeng have grown rapidly.

According to Nielsen’s data, Red Bull was trapped in a trademark dispute in the past two years, and its current market share has dropped from 63% to 58%. It is expected to release at least 7 billion Yuan of market space. Faced with such a big chance, many beverage companies want to compete for the market when the industry is full of variables, and the market is in a changing situation.

In 2017, Uni-President Group launched new product Power In Nature; Danone Group's Mizone, with its former products remained, launched a new sports drink called “Chi Neng Liang"; Red Bull China’s parent company Reignwood Group launched War Horse; C’estbon invade into functional drinks by launching "Mulene" amino acid sports drink; Wahaha introduced a sports drink brand called Suran, 13 years after last launch of similar product; Amway, after the acquisition of energy drink XS, launched a new product in Chinese market in September 2017, of which sales reached 10 million tins in the first 29 hours after launching.

In addition, there are other brands such as screams from Nongfu Spring, COFCO's bigbang Mojito sports drink, Carabao functional beverage from Thailand, and re-energized Jianlibao, etc. The new and old functional beverage brands all compete for their own shares.

At the same time, foreign functional beverage brands also covet functional beverages market in China. Monster Beverage, which excelled in North America, entered China in 2016, behind which Coca-Cola acquired its 16.7% stake for $2.15 billion. Biosteel, a Canadian brand focusing on the professional sports group in Chinese market, formed their main concept of “no preservative, no caffeine, and no artificial color”; American functional beverage L.I.F.E. used NBA player O'Neill as a front of the packaging for marketing; With health function as the main concept, the US beverage brand CELSIUS also announced that it will enter retail terminals across China in the shortest time.

Mr. Li, the owner of a supermarket in Fangzhuang, Beijing, said that five years ago in every 10 bottles of beverages they sell, one bottle might have been a functional beverage, and now it turns to 3 to 4 bottles. “The retail price of a bottle of ordinary beverage is about 3 Yuan, but the price of functional drinks of same volume is 30% higher and the profit doubles.”

Based on above situation, both the terminal sellers and the manufacturers have a stronger willing to cultivate and promote the market.

Some industry experts said that China's functional beverage market has some problems during rapid development. For example, the lack of innovation in enterprises, the serious following-up of the market which results in product homogeneity, the lack of specific standards for the functional beverage industry in China, and the low entry threshold and the disordered competition in the industry. “Beverage manufacturers should correctly position their products in the market, actively carry out innovations in technology and marketing, and look for differentiated selling points.”

Overall, the functional beverage market is still a blue ocean, and there is huge room for growth in the future. It is foreseeable that as the market competition gets fiercer, the competition in channels and marketing will become more intense.