Functional beverages making myriad health and wellness claims are drawing increased investment, but while sales of some products are growing, most fail to win enough consumers to make them a long-term success, according to The Wall Street Journal.
While PitchBook data reported by the WSJ found that venture capital companies have put more than $170 million in functional beverage companies so far this year — up from $111 million last year — only about 3% of new non-alcoholic beverage brands hit more than $10 million in annual revenue, Stu Strumwasser, managing director of Green Circle Capital Partners, LLC, told the newspaper.
Success means finding a perfect combination of funding, flavor, health claims and luck. "You have to figure out which trends will go mainstream, and that’s the risk,” Brett Thomas, co-founder of CAVU Venture Partners, an investor in Bai Brands antioxidant drinks and Health-Ade kombucha, told the newspaper. CAVU tripled its return on investment in less than a year after Dr Pepper Snapple acquired Bai last year for $1.7 billion, The Wall Street Journal noted.
Functional beverages are trendy, and there are claims galore on different drinks. Some promise to enhance antioxidant levels or reduce inflammation. Others offer a better night's sleep or digestion aid, while still others tout their ability to elevate cognitive function, build muscle mass or improve cardiovascular health.
While some of those claims may be true — or at least partly true — it's hard to know which ones to believe and whether the product is worthy of purchase as a result.
Some claims are inherently more plausible than others. For example, turmeric and cranberry seed extract have high antioxidant and anti-inflammatory benefits and are known to promote recovery from muscle soreness. Still, if shoppers aren't familiar with these benefits, it's up to the manufacturer to convince them of these ingredients' properties through educational branding and signage.
Makers of functional beverages need to be careful not to overstate health and wellness claims on their product labeling for fear of attracting regulatory attention from the Federal Trade Commission. Aggressive ad campaigns marketing benefits that can't be backed up by science are particularly liable to run afoul of the FTC.
POM Wonderful learned that lesson a few years ago when its 100% Pomegranate Juice and POMx supplements claimed in extensive advertising that they had "Super health powers ... backed by $25 million in medical research" showing the fruit prevents or treats heart disease, prostate cancer and erectile dysfunction. The FTC determined the company had made false and unsubstantiated claims about the products. POM Wonderful appealed but lost, and the company was ordered to get Food and Drug Administration approval for any future health claims about its products preventing or treating serious diseases.
Chances are the market will continue to see more functional beverages rolling out each year as manufacturers and marketers try to hit the right trend at the right time to catapult their product to success. Beverage makers continue to have a financial incentive since sales of functional drinks jumped 11% in the past year to $3 billion, according to figures from market research company Spins quoted by The Wall Street Journal.
While functional beverages may not be displacing other popular drinks such as water and tea anytime soon, they're likely to continue attracting interest as long as they taste good and offer benefits consumers want and believe they can't get elsewhere.