Beverages Report: Research Points to Functional Beverages

Proprietary data from store brand beverage producers, NielsenIQ show sugar-filled drinks on the decline, healthy ones on the rise.
Dan Ochwat
Executive Editor
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Be it coffee, tea, dairy products, sparkling water, or even alcohol, consumers want added nutritional or functional benefits in their beverages, and private brand suppliers are putting an emphasis on this in the drinks they innovate for retailer private label lines. 

A slew of research supports this trend: SunOpta, a global producer in the fruit and plant-based category that works with private brand partners, found that plant-based foods are growing at a faster rate than total U.S. food retail sales, up 27% in 2020 vs. 2019, compared with a 15% year-over-year increase in total U.S. food. Within that plant-based segment, oat milk was the star, SunOpta said, growing more than 100% in the last year, per Nielsen data, and is the second most popular plant-based milk in the country.

Michael Buick, senior vice president and general manager, at SunOpta told Store Brands that the company expects to see a continued focus on key functional areas that have been on the rise for several years now, including clean label, organic, responsible sourcing, digestive and gut health, healthy fats, keto and less sugar across the board.

“Consumers are looking for immune support, performance-boosting benefits, energy and hydration, and new ways to enhance emotional health and boost brain health, focus and relaxation,” he said. “Certainly, a collective awareness around sustainability, animal welfare and health are influencing consumers as they shop and eat."

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The Canadian company with U.S. headquarters in Edina, Minn., also produces frozen fruit, saying that 60% of the frozen fruit that gets purchased is used for at-home smoothies, a growing trend within functional beverages, too.

Innophos, a specialty ingredient company in Cranbury, N.J., launched two new plant-based solutions for high-protein beverages, citing an Innova statistic that found 68% annual growth in food and beverage launches that include a plant-based claim.

ADM, a nutritional food and beverage company that produces for private label, conducted its own research that found eight in 10 U.S. consumers are trying to reduce their sugar intake, and of those beverage drinkers in its ADM Outside Voice research, 83% say sugar reduction is the most important characteristic in a beverage. This opens a door for more tea and sparkling water consumption.

Kerry, a private label beverage supplier, also did its own proprietary research, surveying 1,460 U.S. food and beverage private label consumers, finding that the COVID-19 pandemic has propelled consumers into private label beverages, and those consumers primarily want nutritional and functional beverages, refreshing and alcoholic beverages, and coffee and tea. 

The research finds private brand drinkers fall into two categories: “adventure seekers” and “practical traditionalists.” The research found consumers are seeking function and flavor. Nearly 50% of “adventure seekers,” had purchased a nutritional and functional beverage in the last 30 days of being surveyed, 76% had purchased alcohol and 69% bought coffee and tea, per the study. Looking at practical traditionalists, only 31% had purchased a functional and nutritional beverage in the last 30 days of being surveyed, whereas nearly 80% bought alcohol or coffee and tea.  

“The disruptive nature of today’s beverage market means that new private label products have a strong opportunity to gain market share by innovating in these categories in order to attract consumers who, in rising fashion, want beverages that offer new taste experiences and functional benefits,” said Shawn Gerstenkorn, strategic marketing director, beverage, at Beloit, Wis.-based Kerry, when announcing the study.

Nielsen Numbers
Functional or not, private brand beverages are finding their way into the homes of consumers, according to exclusive data provided by NielsenIQ, looking at sales for the latest 52 weeks ending July 31.

The numbers show total private brand beverage sales (excluding alcohol) surpassed $7 billion, up 2.3% from a year ago. By comparison, total branded beverage sales passed $84.5 billion, an increase of more than 10%, year over year. The numbers exclude sales at convenience stores, which is a hotbed for single-serve beverage sales.

Total private brand beverage sales (excluding alcohol) surpassed $7 billion, up 2.3% from a year ago. — NielsenIQ

Nielsen also looked at the beverage enhancers category and private label sales there reached $462 million, up 8% compared with the year before, and total branded sales generated $2.4 billion, up 7.6%, year over year.

By category, Nielsen found some segments within beverage overall that stood out over others during the sales period ending July 31. Notably:

Total private label ready-to-drink coffee sales increased 46.8% on the year (nearly $5 billion), compared with a near 20% increase of total branded RTD coffees;

Total private label sports drinks sales increased 54.6% during the annual period vs. a total branded increase in sales of 13.5%;

Value-added waters in private label increased sales 17.6% on the year vs. a 16.7% increase in total branded;

Sales of private label coconut water increased 14.1% annually, passing $5 billion;

Dairy-based private label drinks increased sales by 18.6% on the year vs. total branded sales increasing 12.7%;

Total private label sparkling water sales increased nearly 8% on the year.

There were categories that showed steep declines, however. The Nielsen numbers highlighted year-over-year declines within private label sparkling juice (-14%), private label soft drinks (-11%) and store brand energy drinks (-19.4%). By comparison, the total branded sales in those categories sales increases of 8% or more.

Perhaps not surprisingly, those categories are the ones with the most sugar and fewer functions added, an area private brands seem to be moving away from.

New Twist on Citrus
ADM, based in Chicago, shared with Store Brands a range of innovative and notable flavors to use across beverages and which beverages provide the most function.

Micah Greenhill, beverage marketing director, ADM, said sparkling waters are on the rise and the category continues to get crowded, especially options that contain prebiotics, probiotics, postbiotics, caffeine or antioxidants. 

“Ready-to-drink tea is another trending category,” Greenhill said. “Consumers are turning to tea for its health halo and clean-label appeal with a short list of close-to-nature ingredients. Some teas are stimulating with natural caffeine while others promote a calming effect.”

Coffee kombuchas and other coffee-forward beverages with functional solutions like protein and postbiotics are ones to watch, too, per Greenhill.

Total private label sports drinks sales increased 54.6% during the annual period vs. a total branded increase in sales of 13.5%. — NieslenIQ

In flavor types, Hélène Moeller, vice president, global product marketing flavors, ADM, said citrus flavors that are associated with health and wellness have gained traction in the last year.

Moeller highlighted these citrus profiles with new twists:

Black limes, also called loomi or dried limes, are rooted in Persian and other Middle Eastern cuisines. The lime is boiled in a saltwater brine and then dried in the sun until it darkens and becomes brittle. Black limes have a tart and earthy flavor that is both sweet and savory.

Preserved lemons, inspired by Italian and Moroccan dishes, are cured in salt to deliver a more intense flavor.

Yuzu kosho is a Japanese condiment made by fermenting yuzu peel, chili peppers and salt, developing a unique spicy and citrusy flavor.

Flamed orange was influenced by Patagonian open-flame barbeque cooking styles. Oranges are tossed into a bonfire, caramelizing the internal juices and sugars, until the fruit is completely charred. The juice and pulp have a complex smoky sweetness.

Greenhill said the biggest challenge facing private brand beverage brands is finding a way to stand out in a crowded market. The ADM Outside Voice research said three-fourths of consumers prioritize appealing or interesting tastes and 53% are wary of potentially unappealing aftertastes.

“With the increasing consumer desire for more nutritional benefits, many beverage developers may find challenges in balancing fortification with an appealing sensory experience,” Greenhill said. The company attempts to balance that out by using taste modulators and mouthfeel enhancers, mixing in a vast ingredient portfolio with scientific expertise and technical ingenuity, he said.