By David Pring-Mill
The following text has been excerpted from Sections 4—4.3.5 of the Policy2050 report “Consumer Trends, Diversification & Strategies in the Global Beverage Industry, 2021,” in order to serve as a product sample and fulfill Policy2050’s mission “to keep the most socially-relevant insights outside of any paywall.”
The modern beverage consumer is evaluating every can and bottle within the framework of lifestyle goals, the opinions of other consumers, and digitized models that aim to reduce friction.
The global, highly concentrated beverage industry is diversifying its products and absorbing new players in order to capitalize on emerging, high growth categories and trends while they’re still relevant.
Within this, the opportunities for public health exist on a spectrum. On the less ambitious end, beverages could become less unhealthy. On the opposite end, beverages could be well-formulated with health benefits; manufacturing processes could deliver consistent quality and appropriate levels of substances; active ingredients could remain shelf-stable; scientifically validated functional benefits could be delivered to the consumer, meeting nutritional gaps or enhancing performance; sustainability could be evaluated and improved across the entire product life cycle.
By and large, the industry has not yet achieved these ideal standards. But new consumer pressures and potentially regulation could move it closer. And the gargantuan scale of this industry means that even incremental progress will have profound effects on people’s lives, all over the world.
The increased innovation and diversification is also driving growth. The global non-alcoholic beverage market size could exceed $1.5 trillion by 2025.
Success in this environment requires agility. The beverage space hasn’t just been disrupted by COVID-19. It was already changing because people are changing.
Beverage giants are trying to deepen their knowledge of emerging categories and position organizational leadership to explore the opportunities that would lead to long-term portfolio momentum.
As tempting as it may be to strictly focus on mitigating the effects of this current pandemic-related disruption, innovation is the only way to align brands with new consumer behaviors and mitigate sales decline over the coming decade.
The pandemic-instigated reductions in “on-premise” or “away-from-home” beverage sales could become a massive distraction from long-term growth hurdles. Is your beverage brand on-generation? Within those generations, is it on-trend?
Coca-Cola’s CEO James Quincey has indicated that they’re open to “other insights on opportunities where we don’t even have a vision of what it could be, but we want to learn about what it would take to compete in those categories.”
In other words, knowledge is power.
“Whether a vision that’s worth chasing for the long-term comes out of it or not, it’s way too early to say,” added Quincey.
As a Glanbia Nutritionals infographic, based on Euromonitor data, clearly depicts, functional beverages are trying to meet a variety of consumer wants and needs, such as boosted energy levels, vitamin intake, post-workout recovery, and regular, old-fashioned thirst-quenching.
The meeting of those needs represents a $46 billion functional beverage market in the United States by the year 2023.
Dairy alternative beverages are rising at a CAGR of 7.1% while yogurt beverages are also rising at 2.4%.
High-protein functional beverages exist across practically every beverage category, from meal replacement drinks to functional coffees and “functional carbonates.”
Consider the evolution of the latter category:
Consumers appreciated the effervescent qualities of soda but increasingly not the sugary soda itself, which led to sparkling water, but now they want added health benefits, hence functional carbonates.
This is the new state of the beverage industry.
Imagine the beverage aisle in your local grocery store, or better yet, go there. You will see an incredible diversity of products — a range of soda brands, and different formulations of those soda brands. Bottled herbal teas, vitamin waters, sports and energy drinks too numerous to count.
When you imagine the full logistical network of offices, bottling plants, ships, trucks, warehouses, supermarkets, and corner stores that support each distinct beverage product, it’s almost unfathomable.
Some components of those networks are continually being scrapped, spun out, acquired, and re-engineered. For a variety of reasons, including COVID-19, Coca-Cola did away with its Odwalla juice business and a refrigerated trucking network that delivered fresh drinks to stores. However, those trucks found buyers, and entire fleets are finding new efficiencies through digital platforms, analytics, and automation.
Now imagine a global beverage aisle, which includes the products in other regions that you’re not even aware of. The operational scale here is overwhelming but so is the pace and degree of change. Many of these changes, once fully scaled, have the potential to make consumers healthier and make the beverage industry more sustainable.
If your beverage, food, or consumer packaged goods company is pursuing diversification, remember:
- Watch changing consumer lifestyles and industry policy drivers.
- Know your own unique strategic assets.
- Identify all the relationships between all the brands.
- When acquiring other companies, preserve what made them successful.
- Distinguish between the short-term, medium duration, and long-term trends resulting from COVID-19.
Product diversification sometimes serves as a risk-reduction strategy, enabling a level of success in emerging, high growth areas that reduces the impact of all the inevitable disappointments and failures. As the proverb goes, don’t put all your eggs in one basket.
Diversification can prove relevant during international expansion as not every one of your brand’s products will be a good culture fit abroad, or there may need to be slightly different versions of products. Even domestic markets are craving variety, and with consumers themselves varying significantly around the globe, variety can become a business asset.
A new functional beverage may be positioned as exceptional value in a small container, as opposed to lower quality in a higher volume. However, that value needs to be perceived by at least one consumer segment in each market. That shouldn’t be assumed to be the case, especially during a global recession.
Given the sheer number of beverages existing in most markets, it’s unlikely that any particular beverage giant will cannibalize its own sales by introducing a new product. Yes, this is a concentrated industry and, from time to time, it does happen. But the variety is already there, and change will happen no matter what. If consumers are on the lookout for the next thing, there will always be something for them to find, especially as new digital models circumvent the various controls over retail distribution.
Some multinationals in the consumer packaged goods industry have even resolved to churn a specific percentage of their portfolio annually, as a matter of principle. This way, they will remain sensitive to sales declines.
Companies like Unilever have been careful to distinguish between short-term, medium duration, and long-term trends, resulting from COVID-19. These distinctions are guiding their portfolio evolutions.
Diversification for a smaller beverage company, in the current environment, would likely put more strains on operational capabilities and increase the need for short-term capital. Even The Coca-Cola Company, which has sought to redefine itself as a “total beverage company,” decided to discontinue nearly half of its portfolio in October in order to shift resources to its category leaders.
Beverage giants are diversifying their products. Some of this diversification has been referred to as “contemporizing,” given the extent to which consumer behaviors have changed, driven product changes, and made particular products less relevant.
Some beverages can be almost fadlike. Consumers gravitate excitedly towards a new type of health food or functional beverage for the purported benefits, then they — and the health/wellness media industry — look closer, developing contrarian takes.
For example, smoothies rather suddenly became popular, occupying a similar place within lifestyles as Starbucks, then not so much. The coconut water category took America by storm but sales have declined since 2016 and Coca-Cola did away with its Zico brand (it was later revived). The Coca-Cola Company’s CEO James Quincey has even assembled quarterly “zombie lists” that identify the underperforming brands.
Energy drinks that promised to “give you wings” were themselves flying off the shelves. Today, the U.S. energy drinks market is still going strong but it’s looking saturated and energy shot sales, in particular, have largely stagnated.
Reduced-sugar energy drinks could be one way of retaining Millennial customers who are starting families and leaving behind the “work hard, play hard” mentality that may have originally influenced their energy drink consumption. Or it could be that the category no longer has any appeal for them, regardless of how much sugar is in the cans.
Lifestyle drivers often tell the story behind these types of beverage industry numbers.
Beverages are increasingly linked with lifestyles. This linking has been encouraged by beverage industry marketing. But an individual consumer isn’t exclusively defined by one lifestyle.
The same office worker who treats coffee as a sacred morning ritual that pulls them up out of a slumber, and into a state of functioning, may turn into a different person later in the day. They could become a maniac on a Peloton bike in the evening, then grab a sports drink to replenish their electrolytes. Or perhaps they moonlight as an artist, drinking absinthe with a sugar cube while splattering paint on a canvas, and themselves
Population density also plays a role in lifestyles. Pre-COVID, more than 4 billion people resided in urban areas globally, with forecasts indicating that more than two-thirds of the global population would live in urban areas by 2050. Within the context of the pandemic, the duration of work-from-home policies has emerged as a stronger factor in population distribution, along with multigenerational living, immigration policies, real estate investments, and the various differences in global trends and pandemic impacts.
This is relevant to the beverage industry because people exist within social environments (to such an extent that some scholars now view environments as not merely contextual, but as causal or even constitutive). Therefore, urbanization has been a key driver in energy drink market expansion as people try to match the frenetic pace, increased cost of living, and cultural norms of cities.
In their 2009 book “Build Your Beverage Empire,” authors/beverage consultants Jorge S. Olson and Carlos Lopez wrote that the energy drink market had “slowed from a whopping 75% growth to settle around 50% growth annually—still highly impressive.” Anticipating the growth trend from there on out, they added, “Life is as harried and chaotic as ever, and people will continue to reach for anything that will help them get through their day.”
Kerry Group, a multinational corporation that makes syrups, sauces, liquid concentrates, mixes, powders, toppings, and creamers for the beverage industry, issued out a report on functional beverages, in which they have a vested interest. According to Kerry, the consumer needs that are driving category growth include:
- energy levels
- immune health benefits
- gut and digestive health
- heart health
- mental wellbeing and stress management
- weight loss
- cosmetic health
There’s also a growing demand for more sustainable products and practices.
Innovation has been expanding beverage categories to meet these needs. As this report mentions in its Trends section, consumers are responding to the diversity in the beverage category by making their own concoctions, technically diversifying it further.
The pandemic is affecting behaviors. Throughout most of 2020, out-of-home experiences were a little more guarded, a little less spontaneous; and certain entertainment options, which were also beverage consumption opportunities, were restricted or no longer available.
Acknowledging the diversity of consumers at large, and even the diversity of individual consumer behavior, may naturally lead a beverage company to want to diversify its products over the long-term. However, in the short-term, beverage giants will be more ruthless in separating their perceived winners from underperforming brands.
The core mission of Policy2050 could be described as “technology meets policy.” These strong forces are present in the global beverage industry to a much higher degree than many people would suspect.
Labor shortages remain a global issue in manufacturing. Worker injuries are frequent and the costs are often high. Automation has been proposed as a partial solution to these issues, and even as a means of raising nations’ GDP and productivity.
Many policy drivers affect the nature of beverage products and the growth trajectories of beverage companies. The policy drivers outlined below are largely concerning public health. Functional beverage categories might fall into better alignment with these external forces.
In 2020, the most significant policy driver of beverage industry changes was, very clearly, pandemic responses. Restaurants, bars, theaters, stadiums, and other sites of on-premise beverage consumption were shut down. Coca-Cola saw its sales fall by 28% during its second quarter. Unit-case volume for sparkling soft drinks dropped by 12%.
Considering that obesity has been shown to heighten the severity of COVID-19 infection, sugar-sweetened beverages may be further scrutinized as the world continues to reflect on this situation.
The stringent application of taxes designed to support public health, sometimes known as “Pigovian taxes,” could partly determine the composition within new beverages.
Perhaps in some cases, the mere anticipation of such taxes, in countries and localities where they seem most probable, could inspire industry changes at a faster rate. Anticipate where health policy is going, get there first with a product that complies with the policy, and you could be very successful, or at the very least, deemed to be forward-thinking and on-trend.
The World Health Organization recommends that adults and children reduce their consumption of free sugars to less than 10% of their daily energy intake. The UN agency further proposes that the taxation of sugary drinks would deter consumption, perhaps even by the same percentage as the tax rate. This would reduce negative externalities in the form of healthcare expenditure and raise tax revenues that could be directed towards public health initiatives.
As a University of Waterloo paper observed, new beverage categories have helped to offset larger declines in soft drink sales but many of the replacements still include added-sugars and free-sugars. Even 100% juice beverages fall under this latter definition: “free-sugars include monosaccharides and disaccharides added to foods and beverages, plus sugars naturally present in honey, syrups, fruit juices, and fruit juice concentrate.”
Energy drink regulations in Europe
Energy drink makers have contended that there isn’t any scientific justification to regulate energy drinks differently than other caffeinated beverage products. And yet, for over a decade, there have been reports of large numbers of young people going to the emergency room after consuming energy drinks.
A recent study published in the sought to determine the impact of energy drinks on electrocardiographic and hemodynamic parameters in young healthy volunteers, through a randomized, double‐masked, placebo‐controlled, crossover study. The conclusion: “Energy drinks significantly prolong the QTc interval and raise blood pressure.”
An increased level of regulatory scrutiny, regarding both manufacturing and labeling, has been previously proposed for the energy drinks market in the United States. Presently, the pandemic is rightfully eclipsing other health-related topics.
Through GDPR, the European Union set a precedent for data regulation that had ripple effects throughout digital operations globally. In the post-COVID world, it will be worth paying close attention to how the EU deals with health concerns around energy drinks, as well as new and transformed beverage categories.
Lithuania and Latvia have banned energy drink sales to young people. Norway and the U.K. seriously considered enacting such bans, as well.
Energy Drinks Europe, a trade association, informs the public and its members of the regulatory situation in the EU when it comes to energy drinks. Other resources are also available online.
The following is a broad overview:
- Specific product definitions incorporated into the national laws of EU member states have developed into a common point of reference within the EU.
- At the EU level, the Food Information to Consumers Regulation (EU) No 1169/2011 requires labelling that informs consumers of the high caffeine content and quantifies it in brackets. The label must also state “Not recommended for children or pregnant or breast-feeding women” in the same field of vision as the name of the beverage.
- Additional regulations apply to energy drinks making health claims or adding vitamins, minerals, and other substances that fall under the Addition of Nutrients Regulation (EC) No 1925/2006. These regulations were crafted, in part, to harmonize standards across Europe, so that a patchwork of regulations wouldn’t inadvertently construct barriers for companies trying to add nutrients to their products, move them freely, and compete with other products. Absent this harmonization, an energy drink, or any type of beverage, containing less vitamins and minerals might have actually obtained an advantage. As the regulation noted, some Member States do require the addition of some vitamins and minerals to certain ordinary foods.
EU countries need to notify the Commission if they intend on adopting new legislation on the use of other substances, though they can more freely prohibit the marketing of individual products with high caffeine content based on the general food law (Regulation No 178/2002).
- A Danish report on the EU framework notes that caffeine restriction has not been harmonized.
- The EDE trade association has developed its own code of practice for the marketing and labelling of energy drinks. This includes a stated commitment to labeling that advises moderate consumption. This particular commitment is introduced with the sentence: “As with every food and beverage, energy drinks should be consumed moderately.” One could argue that this is a form of false equivalence; overconsumption of many other foods and beverages might not send a person to the hospital as quickly.
- Energy drink packaging won’t promote the mixing of energy drinks with alcohol or make any related claims. (According to the CDC, mixing the two increases the likelihood of binge drinking, for drinkers aged 15 to 23.)
- Energy drink marketing communications won’t be paired with media if more than 35% of the audience for that media is under 12 years of age. (As previously discussed, these types of determinations may be difficult to make and follow in practice.)
- Energy drinks won’t make the same rehydration health claims as sports drinks.
- Off-label, on websites and elsewhere: “the industry will provide comprehensive information to consumers about energy drinks, their responsible consumption and their characteristic ingredients, including how their caffeine content relates to other caffeine-containing foods and beverages.”
- UNESDA members also say they will refrain from “any direct commercial activity in relation to energy drinks in either primary or secondary schools, including the placing of vending machines.” This also means that samplings will not be conducted in close proximity to schools or other institutions taking care of this age group.
A study commissioned by the European Food Safety Authority (EFSA) found that the age group most likely to consume energy drinks was adolescents.
Norwegian legislation now sets a limit on caffeine in soft drinks (32 mg/100 ml) and requires companies to apply for permission to use it in higher amounts. Norway considered an age limit on caffeinated beverages but ultimately agreed with the industry that the measure would not have been proportionate with the current risk. A 2018 survey, with 1,006 respondents, found that nearly three out of four Norwegians would have supported an age limit on energy drink sales. Women were more supportive of the ban than men.
The World Health Organization suggested that the EU should establish an upper limit for caffeine in energy drink cans/single servings.
Voluntary retailer bans aren’t always followed. Many marketing materials, such as e-sports promotions, seem to capture the attention and interests of young people, despite conflicting pledges from the industry.
Danish health authorities explicitly note that “legislation cannot in all cases protect against excessive intakes of a product,” hence the need for consumer recommendations and education.
Targeted educational programs based on social determinants
Energy drinks are very popular among younger males around the world.
This makes health concerns around energy drinks a topic of relevance not only to schools but to the military. In a cross-sectional 2017 study, 84% of American military personnel reported consuming caffeinated products. Of those personnel, 27% consumed energy drinks. The study states: “energy drink use was associated with male gender, younger age, tobacco use, and less sleep.”
In a 2006 book that comprehensively explored the effects of caffeine, Barry D. Smith, Uma Gupta, and B.S. Gupta observed that the energy drink industry was primarily catering to a younger market of male teenagers and people in their twenties. The industry also targeted very specific consumer segments: extreme sports enthusiasts, video game players, and hip-hop fans.
Young people have been quick to learn about and try energy drinks. A literature review published in Pediatrics stated that even though the drinks have become very popular among adolescents, the ingredients remain understudied. Furthermore, they concluded that the drinks have no therapeutic benefit and toxicity surveillance should be improved.
The National Center for Complementary and Integrative Health (NCCIH) estimates that 30% of teens in the United States, between the ages of 12 and 17, consume energy drinks on a regular basis.
A cross-sectional study, attempting to fill in the knowledge gaps around consumption in the Pacific Island Countries and Territories, found that one-third of New Caledonian adolescents consume energy drinks.
On a more granular level, “boys are more likely to drink them than girls and Polynesians drink significantly more than European and Melanesian adolescents.”
The authors concluded: “Nutritional education targeting energy drink consumers should take these results into account by providing (community-based) educational programs, especially for adolescents from low socioeconomic backgrounds, boys, or those living in rural areas.”
A 2017 study of caffeinated energy drink consumption among youth and young adults in Canada showed that 73.6% of respondents had consumed them. 15.6% had done so in the past week. Consumption was more prevalent across the westernmost province, among males, and with Aboriginal respondents (vs. white only or mixed/other).
The Canadian Paediatric Society supports a ban on energy drink sales to young people. A small town in Quebec enacted a ban and Toronto’s Board of Health seriously considered it.
A 2019 Nutritional Journal study showed that “respondents indicating Indigenous ethnicity consumed the highest reported volume of SSBs compared to all other ethnicities.”
Sociodemographic trends, revealed in various studies of both energy drink consumption and sugar-sweetened beverage consumption, direct a spotlight on the social determinants of health and health inequalities. This calls for a larger societal conversation, which could become a prelude to increased regulation, as well as beverage product diversification.
New York University professor and food industry activist Marion Nestle told The Washington Post that it’s important to look at the demographics of soda consumption today.
She said, “Educated, wealthier people are the ones who avoid it. These are the healthiest people in society, and the healthiest people in society don’t drink soda. They either don’t touch it, or drink it in extremely small amounts.”
Nestle continued, “There’s a table from an industry publication that lays out who drinks soda. Males drink more than females. Younger people drink more than older people. Single people drink more than those who are married. High school graduates drink more than college graduates. Blue collar workers drink more than white collar workers. Hispanics and African Americans drink more than whites and Asians. And people from the South drink more than do people in the Northeast.”
Public backlash to particular beverage products and harmonized or disparate policies could influence diversification strategies. Increased scrutiny of the energy drinks category might also prompt a change in the ingredients and associated changes in pricing, either to recoup the costs or to reposition the energy drink brand as something more organic, functional, and premium.
Healthful product certifications
Policies can also represent commercial opportunities. By choosing to comply with non-mandatory public health guidelines, a beverage company is able to highlight that health/wellness achievement in its marketing and packaging. For example, the Japanese government offers a “Foods for Specified Health Uses” label, which applied to a version of Coca-Cola containing dietary fiber.
Innova Market Insights reports that clean label claims, such as no preservatives, artificial colors, flavors or sweeteners, non-GMO, and natural, increased by 30% from 2013 to 2017.
A “clean” product is hard to define, and the definition is evolving as new technologies, such as genetic engineering, are introduced to food and beverage categories, with varying degrees of cultural acceptance. Absent a more concrete or legal definition, the word “clean” has been applied broadly to labels by food and beverages brands. Likewise, consumers use it loosely or differently when describing their own lifestyles.
Consumer Reports, a consumer advocacy nonprofit, holds the position that the organic label is more meaningful and standardized than “natural” claims on processed food labels. However, their consumer surveying has indicated that consumers are more responsive to the term “natural” than they are to organic certifications. Therefore, they call for the term to either be eliminated or standardized so that it conforms with consumer expectations.
An academic paper published in Food Research International notes that some production methods are perceived as less “natural” when they deviate from conventional agriculture. Artificial additives may be interpreted as “unhealthy” or “unfamiliar.”
A broad diversity of drivers influences the clean label trend. The criteria by which a consumer evaluates what is “clean” varies, from consumer to consumer, and across product categories. This criteria includes socio-cultural factors and both intrinsic and extrinsic product characteristics.
The authors explained: “We suggest to define clean label, both in a broad sense, where consumers evaluate the cleanliness of product by assumption and through inference looking at the front-of-pack label and in a strict sense, where consumers evaluate the cleanliness of product by inspection and through inference looking at the back-of-pack label.”
A whitepaper from the Food Marketing Institute (FMI) noted that the clean label phenomenon presents both dilemmas and ironies; for example, “consumers want added levels of transparency but simpler lists of ingredients.” A 2017 FMI report showed that 59% of shoppers look for claims involving minimal processing and 25% seek out ethical practices in clean labels.
Many labels are becoming more farming-centric as the consumer becomes more curious about processes generally and processes/sourcing even further back in the supply chain.
Having so-called “clean” ingredients doesn’t eliminate the need for a beverage to deliver on both flavor and function. Health-driven reformulations may increase the costs of ingredients and increase the difficulty of finding the right supply chain partner.
According to Thom King, CEO of natural sweeteners company Icon Foods: “Chemicals are always so much cheaper than naturally derived ingredients.”
Icon Foods produces monk fruit extracts, stevia (via proprietary process), allulose (a low calorie sugar), erythritol, and other sweeteners.
Policymakers may choose to step in if they determine that consumers are being misled by the cues on labels and packaging. Label claims have also led to many class action lawsuits in the United States.
A 2011 Australian government report identified the food label as a highly valued communication channel in the marketplace, and identified the different, often competing interests that either clash or find compromises through labeling. Those interests or policy drivers were identified as “consumers’ needs for information; industry’s need for marketing flexibility and minimal regulatory burdens; and government’s objectives in the area of individual and population health.”
To pivot away from what had been an ad hoc approach to food labeling, the panel determined the issues or risks hierarchically:
- food safety
- preventitive health
- new technologies used in treatment or production
- consumer values issues
The opposite of sales-boosting certifications would be warning labels. If companies don’t use ESG frameworks to attract investments, create value, earn customer loyalty, and positively label their products, we could see more warning label ingenuity, especially for unhealthy products with unsustainable production/distribution methods.
For example, Corporate Knights, a publication promoting “clean capitalism,” hypothesized that flights/vacations could come with climate disclaimers. Expedited shipping options in ecommerce could highlight environmental consequences. Fast food could mention that meat products might jeopardize food security and have larger carbon footprints per calorie (though the magnitude of the negative impact varies based on systems of measurement and other considerations).
The full report “Consumer Trends, Diversification & Strategies in the Global Beverage Industry, 2021” is now available for purchase on Policy2050.com.