New Directions in Drinks

There’s a sea change taking place in the beverage business as consumers quietly shift from bubbly to still, high-calorie to healthy, and familiar favorites to experiential, superpremium, and gourmet drinks. And, with Mintel/GNPD reporting that 20,188 new beverages were introduced globally last year, the battle for the beverage dollar will become an outright war.

During the past few years, newer beverage categories—energy drinks, bottled waters, ready-to-drink (RTD) teas/coffees, and enhanced functional beverages—have contributed most of the growth to the U.S. non-alcoholic beverage market, and 2007 was no exception, according to Beverage Marketing Corp.

The company reports that carbonated soft drink (CSD) sales continued their decline. Volume sales of diet CSDs fell 5% across all channels in 2007, according to ACNielsen.

Consumers’ environmental concerns did not appear to turn them away from bottled water; per capita consumption of regular bottled water jumped from 27.6 gal/person in 2006 to 29.3 in 2007, according to Beverage Marketing Corp. Although still a small category, flavored/enhanced waters were the fastest-growing beverage category in 2007.

Energy beverages, with gains in excess of 30%, outperformed all beverage categories last year; RTD tea also enjoyed double-digit growth. Global sales of functional beverages are projected to reach $34 billion by 2010, according to Global Industry Analysts.

Today, the opportunity is not as much about "New Age" beverages, as it is about new beverages for the right age. While America’s 72 million Gen Y adults are still the heaviest users of regular CSDs, they’re also the group most likely to try a new healthy beverage, according to Experian Research Services.

Those ages 18–24 are the No. 1 purchasers of functional beverages, primarily energy/sports drinks and smoothies, according to Mintel’s Functional Beverages—U.S., a report published in November 2007. Experian reports that one-third (31%) of those ages 18–24 used energy beverages in 2007, up 16% vs 2006; 17% of Gen Xers consumed energy beverages, up 9%. But trendy young adults also have the greatest penchant for gourmet products, ethnic flavors, and natural/organic foods—and beverages, too! Gen Yers index the highest for consumption of coffee/espresso with an "international" flavor, as well as sparkling waters, seltzers, and natural sodas, according to Experian.

Cutting Edge Beverages’ H₂Organics is the first USDA-certified organic, nutrient-enhanced water. Red Bull’s new Red Bull Natural Cola with no preservatives or phosphoric acid—and slightly more caffeine than cola—will grab Gen Yers’ attention.

Ethnic drinks such as horchata, kefir, and lassi, as well as oat, almond, and rice milks should also have high appeal, especially with Gen Y’s higher use of soymilk and dairy alternatives. What about liquid meal replacements in "gourmet" varieties for this breakfast-skipping, grab-and-go crowd?

With those age 55+ (now one-third of the population) being the highest users of diet carbonated drinks, according to Experian, adult sodas with sophisticated flavors—and fewer calories—should have high appeal. Older adults are the heaviest users of ground whole-bean coffee, tomato/vegetable juice, and regular tea in packets and bags. They’re also the most likely to take time out for a beverage break.

In addition, because those age 50+ are as likely to exercise and feel tired as those ages 18–24, according to HealthFocus, adult energy, vitality, and sports beverages remain a major market void. And with America in the midst of its largest baby boom ever, healthy drinks for children under age 12 will be in high demand, as well.

Without a doubt, the largest untapped beverage opportunity lies in the $558 billion foodservice segment, where beverage menus may be used to differentiate restaurants from their competitors. Traditionally, quick-service restaurant (QSR) beverage menus have not been known for their innovative beverage offerings, but that may be changing. In a recent survey, 77% of QSR operators told the National Restaurant Assn. that energy drinks were ordered more frequently in their restaurants in 2007.

Technomic’s 2008 Beverage Report confirms that menus are expanding with the addition of drinkable breakfast and desserts, "mocktails," organic cocktails, exotic juices, and water with specific benefits. Premium designer waters and chefs’ signature waters are appearing in high-end eateries. Dry Soda Co.’s finely carbonated Dry Sodas in lavender, lemongrass, and other flavors are designed to be paired with foods—just as wine is.

by A. Elizabeth Sloan,
Contributing Editor 
President, Sloan Trends, Inc.,
Escondido, Calif. 
[email protected]