Healthier options positioned to quench more than thirst

Last year was tough for the beverage category. In a tanking economy, consumers turned to inexpensive carbonated soft drinks, reversing a move toward healthier beverages that had been the trend for several years. If the economy shows signs of life in 2010, will consumers turn back to better-for-you choices in the beverage aisle? Industry experts are betting on it.

“Assuming the economy makes a rebound and consumer confidence comes back, consumers are likely to switch back to more expensive drinks and single serves,” said Phil Gorham, an analyst for Morningstar.

Sports drinks, energy drinks, functional beverages and enhanced water all are categories Gorham thought are likely to generate category growth in 2010. Those categories suffered greatly last year as consumers watched their pocketbooks. “Premium-priced energy drinks and sports drinks were among the categories that were hit hardest,” said John Sicher, editor and publisher of Beverage Digest.

Gary Hemphill, SVP at Beverage Marketing’s information services division, believed that even though consumers are thinking twice before parting with their dollars, growth opportunities exist for products that offer health-and-wellness attributes and functional benefits. “Consumers will still pay a premium for the products that deliver on the benefits they want,” he said.

Lynn Dornblaser, director of CPG Trend Insight for Mintel International Group, expected to see action from new beverage products that provide a “sense of fun, whether it’s fun flavors, unique positioning or a tangible benefit.” Products touting “energy, sustained energy release, hydration, beauty and the like,” she said, will “invigorate the category.” These products are less about specific types or specific brands and more about ensuring a benefit that it promises—even if that benefit is just a sense of coolness or fun, she said.

Enhanced beverages have been showing strong growth as the products’ appeal becomes more mainstream. Owater, the brand of electrolyte-enhanced, sweetener-free waters marketed by one of the founders of Nantucket Nectars, has had strong growth since the brand was introduced in 2004. “Drug stores are looking to offer their customers healthier options as sales of CSDs and heavily sugared drinks decline. Owater offers both zero- and low-calorie options made with natural ingredients,” said Kim Stewart, a spokeswoman for the company.

Muscle Milk, a brand of protein-enhanced functional beverages from CytoSport, has brought innovation to the category with an emphasis on protein. The beverage contains protein ingredients derived from milk, such as whey, but is lactose-free and fat-free.

“Much like Vitaminwater pioneered the vitamin-enhanced water category and Red Bull pioneered the energy-enhanced category, Muscle Milk is launching and carving out the protein-enhanced category,” said Nikki Brown, a representative for Muscle Milk.

While Owater and Muscle Milk aren’t groundbreaking in terms of formulation, expanding their appeal beyond athletes and hardcore gym goers is news. “The real difference to me is that both products are positioned at mainstream consumers, which does make them stand out from others out there,” Dornblaser said. Both beverages, she said, offer much more advanced benefits than fortified beverages consumers are used to seeing, but they are more accessible to mainstream consumers than some of the more “technical” functional drinks on the market.

“They are both small brands that show promise,” Sicher said. “It’s [too] early to tell if they’ll generate much growth.”

Still, enhanced beverages are a good fit for drug stores. “The Muscle Milk protein portfolio is perfect for the drug store company,” Brown said. “We have 100-calorie options, meal-replacement options, diet options and performance proteins with emphasis on healthy, sustained energy and recovery for active lifestyle consumers.”