Click to read the original article for details. In mid-August, Coca-Cola announced that it had taken a stake in functional beverage brand BodyArmor, marking another acquisition in the functional beverage sector following its Powerade brand. For Coca-Cola, which has seen declining sales and is constantly seeking to slim down, its strategic layout to expand in the functional beverage market is becoming increasingly clear. In China, functional beverages are also entering a golden period. In recent years, with the enhancement of national health awareness and increased sports consumption expenditure, the functional beverage market has developed rapidly, exceeding 40 billion yuan in 2017. The market's healthy growth has attracted numerous manufacturers, leading to intense industry competition. Decline of Carbonated Drinks Currently, health concepts are permeating people's lives, and consumer lifestyles are changing. Under these circumstances, cola, dubbed "happy water for couch potatoes," is increasingly being shunned due to its high sugar and calorie content. The traditional sugary carbonated beverage market is deteriorating. Financial reports show that from 2014 to 2017, the sales performance of Coca-Cola and PepsiCo declined year by year. In 2017, their revenues were 35.41 billion yuan and 63.525 billion yuan respectively. In terms of net profit for 2017, the former fell 81% to $1.283 billion, while the latter fell 23% to $4.908 billion. More and more healthier, low-calorie, and additive-free beverage varieties are entering the market, with a focus on health and sensory experience becoming the industry trend. In the carbonated beverage market, Coca-Cola has launched new products like Coke Zero, touting "zero sugar, zero calories"; Pepsi has introduced two sugar-free products: Diet Pepsi and Pepsi Max. In June this year, China's drinking water giant Nongfu Spring launched a new product, "Bubble Tea," entering the carbonated beverage sector. "Bubble Tea" uses tea aroma and fruit juice to eliminate the high sugar content in cola, addressing the most criticized issue of carbonated drinks. The rise of healthy eating concepts has also accelerated the transformation of the two traditional carbonated beverage giants, Coca-Cola and Pepsi. In mid-August this year, Coca-Cola formed a strategic alliance with American sports drink BodyArmor to further expand its functional beverage market. Shortly thereafter, Pepsi announced it would acquire SodaStream, the global leader in soda water machines, for $3.2 billion, aiming to bolster its transition to the healthy beverage market. Rise of Functional Drinks After a training session lasting more than two hours, fitness enthusiast Zhang Yu walked out of the gym, drenched in sweat, tired and thirsty, eager for a drink. The beverage options available to Zhang Yu were dazzling: mineral water, tea drinks, carbonated drinks, fruit and vegetable juices, as well as functional drinks like Red Bull, Mizone, Gatorade, and Pocari Sweat. In the end, Zhang Yu bought a bottle of Mizone. "I used to drink carbonated drinks like cola and Sprite, but now I know that functional drinks are more conducive to recovery after exercise." Zhang Yu's choice also reflects the changing trends in the beverage market in recent years: functional drinks are rapidly rising, increasingly favored by people, and bringing a larger and more attractive pie to the beverage industry. Functional drinks are beverages that regulate human functions to a certain extent by adjusting the composition and proportion of nutrients in the drink. According to relevant data, functional drinks are health beverages that gradually became popular in developed countries such as Europe, America, and Japan after 2000. They mainly include nutrient drinks containing dietary fiber, vitamins, and minerals; sports drinks that adapt to the physiological characteristics and special nutritional needs of athletes or people engaged in physical exercise; and special-purpose drinks such as low-energy beverages with added probiotics, immunity-boosting ingredients, and suitable for obese people. Public data shows that from 2011 to 2017, the compound annual growth rate of retail sales of functional drinks in China reached 17.1%, and the compound annual growth rate of retail volume reached 12.35%. By the end of 2017, retail sales of functional drinks in China had exceeded 40 billion yuan, reaching 41.52 billion yuan, with retail volume growing to 12.783 billion liters. It is estimated that in 2018, retail sales of functional drinks in China will exceed 45 billion yuan. Looking at the global functional beverage market, the scale is showing a rapid growth trend, with an average annual growth rate exceeding 10%. Compared with developed countries, China's per capita consumption of functional drinks is only 0.5 kilograms per year, leaving significant room compared to the global average of 7 kilograms per capita. Therefore, China's functional beverage market has huge potential. Industry experts say that from a niche market to a scale of tens of billions of yuan, the consumption scenarios for functional drinks are continuously expanding, from mainly replenishing energy to multiple scenarios such as dining, gatherings, work, study, and driving. Functional drinks have become a new growth point in the domestic beverage market. Increasing Number of Entrants The highly promising market has attracted many new entrants, and competition in the functional beverage market is becoming increasingly fierce. Data shows that currently, functional drinks account for nearly 13% of the entire beverage market in China, with more than 150 product types. Almost all beverage giants have laid out functional beverage product lines. Among the many brands, Red Bull's leading position remains unshakable, while established functional drinks like Mizone, Gatorade, and Pocari Sweat maintain stability, and brands like Lehu and Dongpeng Special Drink are growing rapidly. According to Nielsen data, due to trademark disputes in the past two years, Red Bull's market share has dropped from 63% to 58%, releasing at least 7 billion yuan in market space. Faced with such a big cake, many beverage companies want to grab a share amid industry uncertainties, leading to market upheaval. In 2017, Uni-President launched a new product, Goran; Danone's Mizone, in addition to retaining its original products, launched a new sports drink, "Blaze"; China Red Bull's parent company, Reignwood Group, launched War Horse; C'estbon entered the functional beverage market with its new "Magic" amino acid sports drink; Wahaha, after 13 years, launched a sports drink brand, Suran; Amway, which acquired energy drink XS, launched the new product in the Chinese market in September 2017, selling 10 million cans in just 29 hours. In addition, there are Nongfu Spring's Scream, COFCO's Bigbang Hi-Ball Mojito sports drink, Thailand's functional drink Carabao, and Jianlibao, which is making a comeback. New and old functional beverage brands are each establishing their own camps and occupying their own territories. At the same time, foreign functional beverage brands are also increasing their presence in China's functional beverage sector. Monster Beverage, which performs well in North America, entered China in 2016, backed by Coca-Cola, which acquired 16.7% of its shares for $2.15 billion. Canada's BioSteel targets professional athletes, promoting concepts of no preservatives, no caffeine, and no artificial colors in the Chinese market. American functional drink L.I.F.E. uses NBA player O'Neal's bust as the front of its packaging for marketing. American health-focused beverage brand CELSIUS also recently announced it will enter retail terminals across China as soon as possible. Mr. Li, a supermarket owner in Fangzhuang, Beijing, told reporters that for every 10 bottles of beverages sold, 5 years ago, maybe 1 was a functional drink, but now it can be 3 to 4. "The retail price of a regular beverage is about 3 yuan, but the price of a functional drink of the same specification is more than 30% higher, with profits exceeding double." Based on this, both terminal retailers and manufacturers have a stronger willingness to cultivate and promote the market. Some industry experts also say that while China's functional beverage market is developing rapidly, there are also some problems, such as lack of innovation among enterprises, serious market following, leading to product homogenization. Moreover, China's functional beverage industry lacks specific standards, has low market entry barriers, and the industry competition is disorderly. "Beverage manufacturers should correctly position their products in the market, actively innovate in technology and marketing, and find differentiated selling points." Overall, the functional beverage market is still a blue ocean with huge growth potential in the future. It is foreseeable that with the intensification of market competition in the next step, the competition for channels and marketing in functional drinks will also become more intense. Source: Zhonggong Net