Beverage Industry

Real Change for America's Health

February 1, 2008
Real Change for America’s Health

By Elizabeth Fuhrman

Health and wellness politics show consumers voting for functional, superfruit and organic beverages
The presidential candidates would have you believe that Americans want nothing as much as change this year. Beverage trends are showing a similar request for change. Consumers are voting with their wallets for new products they can feel good about.
Functional drink sales reached $19.2 billion and better-for-you beverages grew to nearly $14.9 billion in the United States in 2006, according to Euromonitor International, Chicago.
The gains are expected to continue. By 2011, the functional beverage category is projected to surge to $29.1 billion and better-for-you beverages to $18 billion.
“Beverages in general are the growth darlings, if you will, of the industry right now,” says Sheila McCusker, editor of Chicago-based Information Resources Inc.’s (IRI) Times & Trends. “In consumer packaged goods, beverages grew over 5 percent last year, which is exceptionally high in an industry that’s growing at about 3 percent a year as a whole. So beverages continue to bring tremendous growth to retailers, and what’s really driving that is health and wellness beverages.”
New healthier beverage innovation is helping spur category growth. Nearly 380 new vitamin- and mineral-fortified beverages were launched last year, according to Mintel Global New Products Database (GNPD). Add to that more than 200 new low-, no- or reduced-sugar beverages and more than 150 new low-, no- or reduced-calorie drinks. Mintel also reported more new functional; added calcium; weight control; low-, no- or reduced sodium and low-, no- or reduced fat beverages were added.
“This space right now is all about innovation,” McCusker says. “There is a ready and waiting market for healthier beverages, especially offering ingredients that carry specific health benefits. Consumers are much more tuned into specific ingredients than they used to be. They are looking for them.”
Functional: ‘Yes we can’
Showing the proactive nature of the country, the majority of consumers believe they have control over their health.
“Consumer awareness of diet and health relationships is at an all-time high,” said Richard Elder, director of the International Food Information Council (IFIC) and the IFIC Foundation at the 2007 World Wide Food Expo in October. IFIC released statistics on consumers’ general attitudes toward health from two studies, “2007 Consumer Attitudes Toward Functional Foods/Foods for Health” and the “2007 Food & Health Survey.”
The surveys showed that the majority of consumers rate their health status as good, very good or excellent, which is a significant increase from consumers’ feelings in 2006. However, not all consumers are satisfied with their health status. Heart issues, including heart disease, blood pressure, cholesterol and stroke, are the leading health concerns for American consumers. Weight, cancer, diabetes, nutrition/diet and exercise follow.
The good news for beverages and foods is that 75 percent of consumers surveyed in the reports feel that nutrition plays the greatest role in health. Additionally, 66 percent of consumers report making changes to improve the healthfulness of their diets in 2007, which is a significant increase over the year before.  
While the majority of consumers are consuming less of a specific type of beverage or food to improve the healthfulness of their diet, Elder added, “40 percent of those surveyed said they are consuming more of a specific type of food or beverage” and “36 percent are eating more of a certain food component.”
This finding correlates with the fact that the majority of consumers agree that certain foods have health benefits beyond basic nutrition, Elder said. “Ninety-two percent of consumers can name a food and its associated benefit,” he said.
This bodes well for functional beverages. Beverages that provide one or more of the following functions are leading the market: energy (green tea, caffeine and ginseng), vitamins and minerals (including calcium and vitamin D), nutrients (such as fiber, omega-3 and sterols), satiety (fiber, fatty acids and amino acids), superfruits and probiotics.
Energy drinks continue to grow exceptionally well, increasing 30 percent in 2007, according to IRI’s McCusker. “That is tapping into the whole functional market where consumers are looking for foods and beverages to do more than just provide satisfaction; they are looking for actual health and wellness benefits,” she says. “Energy is a huge, huge, hugely sought after attribute right now.”
Antioxidants also are displaying massive popularity. “Consumers are looking for beverages that are going to help with disease prevention,” McCusker says. “That is really fueling the growth of refrigerated teas and coffee.” The RTD tea and coffee category grew 28 percent last year.
Another flourishing market in the better-for-you beverage category is bottled water. Bottled water sales have seen growth for a decade and still earned double-digit growth last year, McCusker says. To top that, enhanced bottled waters boasted 42 percent gains in 2007.
“Regular bottled water is growing exceptionally well, but what is also fueling that growth is enhanced waters, whether it’s vitamin enhanced, or enhanced with specific superfruits that offer antioxidants, or it’s enhanced with energy or protein” she says.
The dairy case also has been the starting ground for functional benefits such as probiotics and omega-3 fatty acids, which are beginning to move into other beverage categories. Probiotics, which aid in digestive health and support the immune system, have been popularized by Dannon Activia yogurt, and its dairy-based, probiotic beverage offspring DanActive, and now appears in Naked Juice Probiotics.
“Dannon Activia yogurt burst open the door last year,” McCusker says. “I think it surprised a lot of people that consumers will buy this. They do understand it. I know Dannon put a lot of money into educating consumers, and I think that really helped to open the door to the market. We’re now seeing probiotics in beverages. That’s going to be a very hot area to watch.”
Omega-3 fatty acids, esteemed for their heart health advantages, are another complex ingredient that consumers appear to understand better these days. With heart disease as the leading disease in America, omega-3’s presence is increasing in the dairy case and in refrigerated juices. “I would expect omega-3 to start appearing in other areas of the beverage industry as well,” McCusker says.
The next generation of functional beverages will target specific consumer concerns like joint health, high cholesterol, high blood pressure and diabetes. “To a large extent, when you’re looking at the energy side of the fence or even the antioxidants, a lot of them are in beverages that have strong appeal among younger consumers,” McCusker says. “But increasingly, I think we’ll see them targeting the aging boomer segment with very specific disease management.”
Additionally, McCusker is surprised that more functional beverages aren’t available for children. Only a few products on the market promote any functional benefits, such as antioxidants. “That’s kind of a wide open area as consumers are looking for ways to enhance their children’s future health,” she says.
Weight: ‘Solutions for America’
Diets are a girl’s — and now even a guy’s — best friend. More than 72 million Americans are on a diet, which is less than voted in the last presidential election, but more than the 55 million a decade ago, says John LaRosa, research director of Marketdata Enterprises, Tampa, Fla.
The Centers for Disease Control and Prevention’s (CDC) latest data (from November 2007) reports that more than one-third of U.S. adults — more than 72 million people — were obese in 2005-2006. This includes 33.3 percent of men and 35.3 percent of women. The figures, though, show no statistically significant change from 2003-2004, when 31.1 percent of men were obese and 33.2 percent of women were obese, the CDC says.
With “The Biggest Loser” television show hitting top rankings in the number of viewers watching, it is no surprise that Americans’ minds are on losing weight. Programs such as Weight Watchers, NutriSystem and Jenny Craig lead the way in diet plans, but choices like The Sonoma Diet, which follows a Mediterranean inspired lifestyle, including drinking wine, are making gains.
Other diets though, such as Atkins and South Beach, have seen interest wane. Five years after “The South Beach Diet” book published, sales of Kraft Foods Inc.’s South Beach Diet foods have slowed dramatically from the $250 million spike it reached in 2006. Aiming to turn those numbers around, Kraft changed its line’s name from “South Beach Diet” to “South Beach Living,” and reframed its philosophy. South Beach Living foods are for people who want to eat healthier and manage their weight as part of their ongoing lifestyle, the company says. The products still offer the same foods based on the principles of The South Beach Diet, such as lean protein, fiber, whole grains, vegetables and unsaturated fats.
“The new name reflects a long-term approach to healthy eating vs. the short-term view people often take on dieting,” said Ryan Clark, director of marketing for South Beach Living Foods, in a statement.
The brand also added more new products to the line, including two drink mixes. South Beach Living Tide Me Over Drink Mixes, in Natural Strawberry Banana and Natural Tropical Breeze varieties, offer a low-calorie fruit flavor to bottled water, and provide 3 grams of protein and 5 grams of fiber.
IRI reports that beverage and food products with weight management benefits, including portion control, reduced fat and calories, are outpacing total consumer packaged goods sales by a significant margin.
Additionally, light alternatives are well-established among several major beverage categories, including milk, beer and carbonated beverages. Given the availability of light options across the beverage categories, IRI says it appears that consumers may be more likely to target beverages than foods for calorie reduction. Across beverages, growth trends among light options are slightly more favorable than total category growth trends. Bottled juices are an exception, with light products trailing total category growth, which could possibly be attributed to a flavor factor.
“I’m not sure all the brands have tapped that taste barrier, but there are some highly successful juice products in the light segment that will spur growth within that light segment,” McCusker says.
Miller Brewing Co. is hoping its new lighter option will spark beer sales for its Miller Genuine Draft brand. Set to be available in March in the Midwest with a national rollout likely, MGD 64 has a little more than half the calories of MGD Light’s 110 calories. Targeted toward females, MGD 64 would replace MGD Light in the marketplace. The beer is the lowest-calorie mass-market domestic beer, although Beck’s Premier Light from Belgium’s InBev also boasts 64-calories.
In addition to more light beverage options, portion control is starting to play a roll in beverages, particularly in school systems. (See sidebar). “We are starting to see smaller portions on beverages and calling out, especially on low-calorie [products], the exact number of calories, particularly a 100 calories or under,” McCusker says. “I think a big market that’s untapped is portion-controlled healthy beverages targeting kids.”
Super superfruits
With many more superfruits entering the beverage market than the 24 states that held primaries and caucuses on Super Tuesday, beverage companies are the key industry for including superfruits in their products, with around 35 percent of new beverages featuring the antioxidant-laden giants, according to Mintel’s GNPD.
Superfruits are becoming increasingly mainstream. Longer-established varieties, such as blueberry and cranberry, continue to increase in usage as pomegranate maintains its growth and acai, noni, mangosteen and goji emerge. Even newer varieties such as acerola, dragonfruit and camu camu are appearing, and superfruit blends are countless.
Superfruits also contributed to functional beverage sales increases and RTD tea growth. “That area just continues to expand as more fruits are discovered and made more aware of their benefits,” McCusker says.
While the potential benefits of antioxidants and nutrients such as vitamin C are widely accepted, manufacturers still have to accurately report the claims they make for various superfruits. For example, the Food and Drug Administration has issued warnings to some companies over claims made for goji. Negative coverage may undermine consumer confidence in superfruits’ potential health benefits, Mintel says.
But beverages delivering any type of fruit or vegetable servings are a hot ticket item for consumers right now, McCusker says. Only approximately a quarter of the population is consuming five or more servings of fruits or vegetables a day. “We’ve had some successful products in that space, but I think we’ll see a lot more,” she says.
Organics: ‘True strength’
In addition to reaching for products with healthier ingredients, consumers also are avoiding products that may contain harmful ingredients, which is proved by the solid growth in organic and natural products. According to a 2007 Nielsen global study, 57 percent of North Americans say the main reason they choose organic products is because “it’s healthier for me.”
While organic products and functional foods are popular with consumers, many consider them to be too pricey, with half of North Americans saying cost is the main reason for not buying organics, Nielsen reports. The U.S. organics shopper, who tends to be younger and have a family, spends as average of $127 on their weekly grocery bill, according to Scarborough Research. This is 10 percent higher than the national norm of $115.
Consumers many not be convinced of the necessity of organics regarding health, especially in some processed food categories, Mintel says. Shoppers may opt for natural or mainstream products, and save their “organic dollars” for segments such as dairy, produce and meat, where they feel organics are safer and more beneficial.
Changes for children too
Calories from beverages shipped to schools nationwide have dropped 41 percent after the beverage industry’s first year of implementing the National School Beverage Guidelines, according to the American Beverage Association (ABA), which created the guidelines. The three-year initiative calls for the reduction of beverage calories in schools by providing a range of lower-calorie, nutritious, small-portion beverages and the removal of full-calorie soft drinks by the 2009-2010 school year.
“I am thrilled with the first-year results,” says Susan Neely, president and chief executive officer of the ABA. “No other sector of the food industry has stepped up to the plate the way the beverage industry has and done something meaningful to support the effort for food nutrition and education in schools.”
The School Beverage Guidelines are embodied in a memorandum of understanding between the Alliance for a Healthier Generation (a joint initiative of the American Heart Association and the William J. Clinton Foundation), the ABA, Cadbury Schweppes Americas Beverages, The Coca-Cola Co. and PepsiCo Inc. Each year, the industry has to meet markers in terms of implementation, and it has met every first year marker, Neely says.
Shipments of full-calorie soft drinks have decreased 45 percent between the 2004 and 2006-2007 school year, according to the “School Beverage Guidelines Progress Report 2006-2007.” The report shows that the average high school student consumes less than half a can of full-calorie soft drink a week in school, compared with a little more than a full can a week in 2004. In contrast, shipments of bottled waters to schools are up by 23 percent from 2004.
School contracts also are on track for the three-year plan. For the first year, 35 percent of all contracts between bottlers and school districts have achieved compliance with the guidelines.
Changing the school beverage landscape hasn’t been an easy task though. With approximately 125,000 school districts in the country, the gains made during the first year are noteworthy given the challenges associated with educating and training bottlers and schools, revising financial arrangements, and, not to be stated lightly, reformulating and repackaging product lines and reconfiguring vending equipment, Neely says.
“Some of the products have to be in smaller portion sizes as part of the new beverage policy, like 100 percent juices,” she explain. “The large concentrate companies had to commit to reformulating those products so they would meet the new portion sizes, and in some cases a new container had to be created, so a 100 percent juice could go into schools and actually be vended.”
With many bottlers’ sales forces trained on the guidelines, data reporting methods for the system set and the substantial marketing undertaken last year, the second year should prove a little easier, but the hard work of continuing to change the beverage selections in schools still remains. The key marker for year two: 75 percent of schools under contract need to be in compliance.