New analysis of the functional beverage market in Australia and New Zealand

Functional beverage manufacturers are acknowledging consumer demand for natural and organic beverages by investing in product innovation, new flavours, and the introduction of balanced nutrients and environment-friendly packages. 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.

New analysis from Frost & Sullivan, Analysis of the Functional Beverage Market in Australia and New Zealand, finds that the market earned revenues of $1.6 billion in 2012 and estimates this to reach $2.3 billion in 2017. The study covers the product segments of sports drinks, 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.

However, there is widespread scepticism 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 Frost & Sullivan 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, labour and land.

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. Participants will gain a definite edge by establishing a strong pipeline to constantly introduce products and flavours," noted Liu. "Additionally, effective marketing campaigns, distributions channels, and pricing strategies will go a long way in boosting the market's prospects."