Once viewed as an opportunity for refreshment and indulgence, the beverage category has undergone a significant transformation with a growing focus on nutrition.
In the Beverage Industry's 2018 product development outlook, 62% of U.S. consumers are seeking natural beverage options, a shift reflected in part by the soda category's continued decline and the rapid growth of organic drinks. In 2025, the segment is expected to top $55 million and grow at a compound annual growth rate of 13%, according to a report by Grand View Research.
Consumer demand for nourishing, on-the-go drink solutions shows no sign of slowing down. Manufacturers of all sizes are racing to incorporate value-adds like probiotics, functional ingredients and even animal proteins into their products.
But what sparked this change in consumer beverage expectations, and where is this evolution headed next?
"People are interested in functionality, and instead of asking ‘What’s in this bottle,’ they’re asking ‘What is this bottle doing for me?’”
Senior beverage analyst, Euromonitor International
Howard Telford, senior beverage analyst at Euromonitor International, said a convergence of consumer demand for convenience, low-sugar options and better-for-you ingredients is increasingly pushing the beverage category into the meal space.
“There’s a shift toward consumers viewing beverages as a sort of preventative nutrition occasion," Telford told Food Dive. “People are interested in functionality, and instead of asking ‘What’s in this bottle,’ they’re asking ‘What is this bottle doing for me?’”
Consumers crave all-natural drinks
All-natural offerings are the top priority for today’s health-conscious beverage buyers, Telford said. Although this term can mean something different depending on the consumer — it has yet to be regulated by the Food and Drug Administration — many shoppers associate natural products with authentic, traditional production methods.
Consumer interest in natural offerings has been compounded by the increasingly hectic pace of modern life and the instability of current politics, according to Mintel. In its 2017 trends report, the marketing research firm said “people are seeking the safety of products that are recognizable rather than revolutionary,” and that manufacturers should look to “ancient recipes, practices and traditions” as a source of innovation.
In the beverage space, this trend is reflected by the meteoric rise of kombucha, a fermented tea drink shoppers crave for its unique flavor, natural carbonation and gut-health benefits. Once found only in niche health food stores, the drink category is expected to be worth $1.8 billion by 2020.
It's no surprise that major beverage manufacturers, desperate for growth, have been eager to snap up health halo products like kombucha and drinking vinegars, pushing the natural beverage category further into the mainstream market. In 2016, PepsiCo acquired KeVita, a maker of sparkling probiotic beverages. Under the beverage giant, KeVita has expanded beyond mom-and-pop organic retailers to traditional formats like c-stores, foodservice establishments and airports.
"Health and wellness consumers are driving these products and these changes," Telford said. "They want to be healthy inside the home, during lunch occasions and commuting."
Consumers are sweet on low-sugar and no-sugar formulas
Even if the average consumer isn’t fully familiar with natural beverages like kombucha, coconut water or herbal tonics, they have made an impression on public expectations for the category.
“If you think about the millennial generation and what they were consuming as kids versus what they’re consuming now, I think in general we’re trending away from sweetened beverages as part of the daily routine," Telford said.
This change in consumer behavior is perhaps best reflected by the unexpected and widespread success of soda taxes across the nation. Only five years ago, taxes on sugary beverages were widely viewed as a failure— before the successful passage of Berkeley, California’s soda tax in 2014, similar initiatives had flopped at least 40 times. But now with eight local U.S. jurisdictions passing tax measures, researchers predict the trend will continue to gain momentum.
Telford said decades of public attention surrounding the dangers of sugar have finally sunk in, and that shoppers are becoming more interested in healthier alternatives. Consumer rejection of artificially sweetened beverages is arguably just as potent, spurred by fears over how ingredients like aspartame and Ace-K impact metabolism and other bodily functions.
“It matters to all consumers, and it’s something that’s happening in the premium tier as well as the mass tier. The consumer is looking at the labels and they want a clean label without 45 grams of sugar in the bottle,” Telford said.
The decline of soda and multi-serve fruit juices can be traced back to this changing consumer behavior. Instead of reaching for sugar-laced orange juice or soda, today’s consumer is more likely to seek a sparkling water such as La Croix. Sales of the beverage more than doubled between 2015 and 2017 to $225.5 million, driving major beverage manufacturers to play catch-up. In October, Coca-Cola bought Mexico's sparkling water brand Topo Chico for $220 million as part of CEO James Quincey's plan to become "a total beverage company."
But this growing tolerance, and even preference for less-sweet beverage formulas, doesn’t signify the death of indulgence.
“There are still stand-out brands that are purely indulgence that are doing well,” Telford said. “Mountain Dew, for example, is still successful, and Fanta had a good year. … I think indulgence is still part of our routine, but it’s not part of our daily routine, not something we’d be comfortable consuming with meals, for example, or multiple times a day.”
Telford noted the consumer's love for sugary, high-calorie coffee drinks in the foodservice space reflects this trend, and that there is a way to go before American consumers are comfortable with products that have zero sweetness.
“Is the mainstream consumer ready for a ready-to-drink matcha tea, for example, that isn’t sweetened and has sort of a grassier, earthier flavor profile?” he asked. “I think there are some manufacturers that are prepared to take that risk, and there are some that the research would tell them that, for their demographic, there’s going to need to be a certain level of sweetness.”
Blurring the lines between beverage and meal
While natural, less-sweet drink options have made serious waves in the beverage space, there is a third category that is rapidly growing.
As demand for convenience transforms the broader food industry, on-the-go consumers have begun to view beverages as an easy opportunity to get extra vitamins, fruits and vegetables and even animal protein into their diets. This demand has led to the rise of bone broth and chilled soups, which shoppers can consume as a mid-day snack or meal replacement.
The growing popularity of products such as Bonafide Provisions’s Drinkable Veggies, a line of vegetable-based beverages that combine bone broth, cold soup and HPP juices, is perhaps the best example of this shift. The company is positioning the beverage line to compete with market leaders like Campbell Soup's V8. Bonafide claims the formula’s “powerhouse combination of collagen and protein from bone broth, plus whole organic vegetables helps keep you full and satisfied without worrying about a sugar crash.”
Bonafide Provisions co-founder Alex Rains told Food Dive that she and her aunt — who are both former nutritionists — launched the company to serve consumers who were trying to get added nutrition from juice cleanses.
"Bone broth has so many applications that span so many demographics. ... You can use it to upgrade the nutrient-density of your meals, to help heal your chronic issues or to support joint health and recovery."
Co-founder, Bonafide Provisions
"[We] would constantly tell our clients that we did not want them doing traditional juice cleanses because they really were not good for you ... They were averaging 30 grams of sugar per bottle with no fiber of macronutrients," Rains said in an email. "We have seen a shift in consumers wanting less sugar and realizing that sugar is terrible for you. We saw a need in the juice coolers that we knew our Drinkable Veggies could fill."
Some industry observers say bone broth is another millennial-driven health fad because there is little evidence to support claims that the drink has restorative health benefits. Rains is confident the beverage will benefit medicine users, athletes, home chefs, nutrition-conscious parents and foodies. Telford believes the category has staying power because it caters to the consumer's interest in slower, authentically prepared food — without the time commitment of actually having to simmer bones, herbs and vegetables at home.
For now, it's uncertain if CPG bone broth will gain the same popularity as kombucha. In 2016, the overall category saw sales more than triple to $19.7 million, driven by interest from Whole 30 and Paleo dieters, as well as other health-conscious consumers.
"I think the authenticity, availability and versatility [of bone broth] is what encourages people to try our products," Rains said. "I think we've just scraped the top of innovation and how the space can grow."
Telford thinks there may still be a way to go before products like these become affordable and attractive enough to the average consumer.
"When we're talking about some of the really far-out there sort of products like savory vegetable drinks and bone broth, ... we're talking about wellness channels, [and] premium products that carry quite a high price point and probably skew a bit younger," Telford said. "It's a distinct profile, and obviously the biggest beverage companies notice these trends, but what's the tipping point that it becomes a mainstream beverage?"