Functional Drinks Sector Bucks Covid-19 Trend As Investment Pours In

  • Venture capitalists invested more than $170 million in functional beverage companies in 2019, up from $111m in 2017, according to Pitchbook data. 
  • Functional drinks companies such as Flow, Hydrant and Huel are challenging the big hitters of the $53.01bn energy drink market. 
  • Avrox Technologies launched hydration sachet product EI8HT Energy in the UK amid the backdrop of the COVID-19 pandemic, reporting a significant increase in sales. 

LONDON, United Kingdom — Amid the COVID-19 pandemic, functional beverages – or drinks with benefits – have been trending. The market has been quietly enjoying record growth in investment, while consumers seek healthier alternatives to sodas and energy drinks, as well as being drawn to companies with ethical values at their core. 

In early May, sustainable Canadian drinks company Flow raised $45m in funding for its alkaline spring water, with CEO and founder Nicholas Reichenbach setting his sights on owning 10% market share of America’s 189 million premium water buyers by 2021. 

A week later Hydrant, an electrolyte hydration startup based in the US, was also in the news for raising $5.7m from investors in a Series A round, bringing its total funding to date to $8.8m. 

Meanwhile in the UK, Huel, the powdered meal in drink form which raised £20m in October 2018, claimed the title of the world’s best-selling ‘complete nutrition brand’ this January. The 2014 founded company reported a record-breaking 100 million meals sold across 100 million countries, with one Huel meal consumed every second. 

Read More: Huel Becomes Best Selling ‘Complete Nutrition Brand’ In The World

While this new generation of beverages that offer functional benefits beyond simply flavour has emerged, these companies are still playing catch up with the likes of Red Bull, Monster and Rockstar, especially in the US market. 

According to Allied Market Research, the global energy drink market was valued at $53.01bn in 2018 and expected to grow at a CAGR of 7.20% to reach $86.01bn by 2026. 

The dominance of the big three has also allowed them to widen their product offerings to compete with smaller players. For example, the organic energy drink Steaz Energy gained popularity for using certified organic and Fair Trade ingredients and being based on green tea. In response, Rockstar developed an organic offering and Monster has one with green tea. 

However, there are signs that niche functional drinks companies are gaining in popularity among both consumers and investors. Last year, VCs put more than $170m toward functional beverage companies – up from $111m in 2017, according to Pitchbook data. 

And in November, Imbibe, the beverage development company and self-titled “Drink Tank”, predicted 2020 would see a new generation of functional drinks emerge, with “demand for beverages that support physical and emotional health to continue to be a catalyst for innovation”. 

The report suggested brands would “go back to basics” by incorporating essential nutrients that support physical and emotional health, while also featuring ingredients like adaptogenic herbs and CBD.
Image: Flow

Another brand to enter the functional drinks space is EI8HT Energy by UK company Avrox Technologies. Like Hydrant, EI8HT Energy is taken as a sachet mixed with water and the company claims it has been scientifically proven to increase the body’s ability to transport oxygen by as much as 5%, for at least 80 minutes following ingestion. 

Five years in the making, the technology was first applied within cancer treatment trials, but founder and entrepreneur Ray Averre has since worked with Professor Eleanor Stride of the University of Oxford to develop the drink into a consumer product. 

Averre believes the investment pouring into the functional drinks market is being driven by other categories becoming stagnant. “Functional drinks have led the way in beverage growth for some time as consumers increasingly look for a drink that does something for them, aside from simply hydrating,” says Averre, speaking to Welltodo. 

“The claims that functional drinks make are attractive from an investment perspective and help position products as offering a USP compared to others. This is much harder to do in non-functional categories where flavour or size is often the only differentiator.” 

Despite the global disruption caused by the Covid-19 pandemic, Averre says sales of EI8HT Energy are flooding in. “Coronavirus has seen our sales significantly increase. In some ways, this is surprising as so many businesses are struggling at the moment, but in other ways, it is to be expected,” he argued.

Adding: “The greatest lesson to take from this experience is to hammer home how your product can actually benefit consumers. Why do they need it? Give them an answer and they’ll part with their money.”
Image” Hydrant

For EI8HT Energy, the answer is in enhanced performance. “EI8HT Energy is a performance product, designed for people exercising. Lockdown meant one of the only reasons people could leave the house was for exercise, so it has actually encouraged a lot more people to become active and encouraged active people to exercise even harder (indoors and out).” 

The drink has proven especially popular with runners and cyclists, activities Averre says have increased amid the current climate, but at the same time, he expects the greatest threat to continued success in the sports nutrition market, ironically, will be saturation. 

“The main challenge for us is entering a very noisy market. Lots of brands make lots of claims and often have significant marketing power to get them in front of people, and this is a challenge for any startup brand, not just us,” he told Welltodo.

“Our main opportunity lies in our product – it is genuinely worlds apart from anything else out there. It’s patented, has been developed with Oxford University, and has been rigorously tested on athletes for performance benefits. How many products do you see on the shelves like that?” 

Averre believes the functional drinks sector, both in the UK and globally, has the potential to play a huge role in improving health and wellbeing by providing consumers with the functional benefits and nutrition that they need to live healthy, active lives. 

“The challenge is getting consumers to believe what we’re saying,” he says. “As an industry, I think we need to focus more on the tangible and measurable benefits we’re offering and cut down on the snazzy marketing that confuses consumers more than it enlightens them.” 

So with investment and innovation driving the sector forward, what does Averre believe the future holds for functional drinks? “We think future innovation will shift from looking to include ingredients with beneficial effects to looking at how those ingredients can be put to better effect, driving larger benefits and delivering them more quickly. It’s an exciting industry to be in.”