Making Water Even More Functional

Water is already pretty functional when it comes to promoting good health, and products that build on its healthy properties—and even add a little taste to boot—have become quite appealing to certain segments of consumers. But some of those health claims might not be so substantive, and some of what brings taste to these “functional waters” might not be so healthy.

“Water already has the ultimate health halo. It’s already a functional, healthy beverage,” says Caleb Bryant, associate director, food and drink, at research firm Mintel. “Additional benefits transform water into [providing] even greater functional benefits. This layers up into consumer interest in health and wellness. … Adding functional benefits allows a brand to target specific consumption occasions and also to target specific consumer groups.”

“There’s a lot more focus on everything [consumers] are putting into their body, functional food and beverage being one of the key elements,” adds Scott Dicker, senior market insights analyst for SPINS, which estimates functional waters as a $340 million market in the United States, growing 18% for the yearlong period ending Aug. 7, 2022. “We’re seeing a lot of things that used to be niche supplements for targeted groups becoming mainstream for everyone.”

North America was home to one-third (33%) of new product introductions between July 2021 and June 2022, according to tracking data from Innova Market Insights. West Europe (27%) and Asia (16%) were the next most common regions for functional water introductions.

The United States has been the top market for beverage introductions in this category, Innova found, with 27% of all new product introductions during that same time period, while the five-year U.S. compound annual growth rate of 24% between July 2017 and June 2022 was higher than the global average of 17%.

Health Claims

Immune health leads the list of health-related claims on functional waters in the United States, where nearly half (45%) of such products featured that callout between July 2021 and June 2022, Innova found. Energy/alertness was close behind at 41%, while the term antioxidant appeared on 28% of packages.

The fastest-growing claims over the five years ending in June 2022 had significant overlap with the leading claims, with energy/alertness at 45%, immune health at 41%, and then digestive/gut health at 19% compound annual growth rate, according to Innova, which also noted an upsurge in waters claiming prebiotic benefits, especially combined with digestion and gut health claims.

Bryant of Mintel sees opportunities for functional waters that promise to promote relaxation, especially among Gen Z consumers, including those positioned as healthier “alcohol alternatives” and those with skin health claims, such as products with collagen.

Functional waters advertise health benefits like mood, digestion, and cognitive support, although “obviously, hydration is a big one,” says Dicker of SPINS. Waters with caffeine in them have grown 52% in the yearlong period ending Aug. 7, 2022, he says, while those with CBD have grown 29%. “That leads into other trends, beyond hydration and performance,” he says.

BevSource, a consultancy that works with beverage brands to develop their formulas, sees waters with CBD, THC, and adaptogens as being the most significant upward trends in terms of health benefits, says Vikrant Lal, senior manager of formulations services.

“People are trying to get everything in there,” he says. “There’s still an interest in electrolytes and hydration, but our clients want something else. There aren’t as many people doing traditional sports nutrition.”

Yanni Hufnagel, founder and CEO of The Lemon Perfect Company, says his brand’s signature functional water provides an organic, zero-sugar option, drawing from the functional and flavor benefits of organic lemons. “The product has to taste good, but now the consumer is looking for other benefits,” he says. “There’s certainly a trend away from artificial sweeteners.”

Are They for Real?

The true substance of health claims varies from product to product and brand to brand, Dicker says. “When you compare some of these products to plain water, it’s debatable how much of a benefit they provide,” he says “But it depends on [a consumer’s] overall diet. If they’re having caffeinated water instead of a sugary drink with caffeine, that’s an improvement. It depends on what they’re swapping out for it, instead of [how healthy SKUs are] in a vacuum.”

Lal says the benefit of such products depends on the scientific bona fides of the clinical research behind them. In many cases, “It’s mostly psychological,” he says. “You feel like you’re doing something good because it has ginger in it, or turmeric. The general consumer is educated on anti-inflammatory [benefits], but it can be at a totally meaningless level. The consumer will think, this is quote, unquote ‘better for me.’ Is it actually doing something? Probably not.”

Hufnagel of Lemon Perfect—who had a cup of black coffee, a can of Montane Sparkling Spring Water, and a bottle of his own brand arrayed on his desk during a Zoom interview—says many brands in the category are based on synthetically created ingredients. That said, “Am I a believer in premium water as a category? Sure,” he says.

Adam Gauer, cofounder and chief operating officer of Plus Brand Industries, which makes the AguaPlus brand of alkaline water, says it’s easy to “play the skeptic” when it comes to categories like functional waters. “It’s a small component of an overall healthy lifestyle,” he says. “If a company marketing alkaline water says it will lead you down the path toward a healthier lifestyle, doing nothing else, that’s misleading. That said, it can play a great role.”

Shelf Space

Finding shelf space in the increasingly crowded functional waters market can be a challenge, which means brands need to work to stand out. “Retailers are only going to stock so many varieties of lime-flavored water,” Bryant says. “Flavor innovation is key for differentiation—floral flavors, botanical flavors, any type of differentiation to make a product stand out.”

Dicker says separating a brand from the pack can mean formulating unique flavor profiles, going to market with a sparkling rather than still water, or figuring out ways to manage the price increases during the current wave of inflation. “People are switching to private label,” he says. “It’s also a category that’s facing competition from everywhere. Energy drinks are becoming lower calorie. Sodas are competing, with the types of sweeteners they’re using.”

Another challenge in gaining shelf space has been the restrictiveness of some stores in terms of what they will allow to be displayed in the functional waters category, Lal says. “There’s concerns that these nutrients themselves might be degraded in the processing of the beverage,” he says. “How can you process all these functional benefits without ruining the [ingredients], and still make the claims necessary to get into these retail spaces?”

Lemon Perfect has not faced any challenges getting onto the shelf, Hufnagel says. “There’s been no friction for us in terms of continuing to build our distribution footprint,” he says. “We’re increasing our velocity in-store at the same time.”

In the age of e-commerce, consumers aren’t necessarily buying off the shelf in the first place, Gauer contends. While gaining physical shelf space has become more challenging given the proliferation of brands, it’s “not necessarily mission critical anymore,” he says. “It depends on what the goals of a brand are.” Having interactive “smart” packaging, which AguaPlus has developed, helps to garner the attention of distributors and retailers, he adds. “That’s the pathway to obtaining that shelf space, and beyond that, maintaining it.”

Key Audiences

Bryant sees a broad audience in terms of generations for functional waters, with nearly one-third of Gen Z (32%), millennials (31%), and Gen X (28%) saying they consume such products, according to Mintel’s figures. Different claims appeal to different groups, with Gen Z drawn to waters that reduce stress, Gen X over-indexing on gut health and antioxidants, and millennials most attracted to waters that “promote cognitive function and increase mental clarity,” he says.

Twenty years ago, functional waters and other beverages had a tight focus on “athletes, athletes, athletes,” but that’s broadened considerably, Lal says. “It’s not just the young males from 18 to 35,” he says. “You’re seeing a lot of focus on children’s health, looking at functional nutrients in more appropriate levels for children. … When we’re talking to a client, we might say, ‘You’re promoting gut health, but for what age range?’ The needs of every demographic may be different.”

Further Breakdowns

Most functional waters are still rather than sparkling, although those that promise a boost in energy, such as caffeinated waters, tend to be sparkling, Bryant says. “It has to do with both formulation but also consumption occasions, sparkling water being something people have with meals,” he says. “Caffeinated sparkling water is very much one of those afternoon pick-me-up beverages, consumed at work.”

Most consumers who prefer alkaline waters cite taste (51%) as the primary reason, while another 41% say it promotes hydration, and more than one-third say it neutralizes acid and reduces inflammation, Bryant says. “There’s, of course, discourse on what these products actually offer consumers on a scientific basis,” he says. “But consumers have the perception of alkaline waters carrying a health halo.”

Lal agrees that alkaline waters probably provide minimal benefits. “I don’t know at what dose or how much you would have to drink to have any kind of connection to a health benefit,” he says. “If it’s marketed well, and there’s enough information on the Internet, people will say, ‘This sounds good for me.’ But our bodies regulate our pH.”

“Acidity, in and of itself, in our diets can lead to health issues,” Gauer counters. “Do alkaline waters solve that? No, but it can [be] a component. No one thing is going to do it. We want to manage and steward this component.”

New Product Introductions

Plus Brand introduced AguaPlus about two years ago, Gauer says. The product comes in various case sizes; it’s currently in 500 ml bottles, although other sizes are in development, along with versions geared toward children. AguaPlus offers ingredients like electrolytes and minerals that provide adequate hydration, he says. “Our product is fairly straightforward,” he adds. “It’s meant to be a clean product, with taste as a big component.”

Lemon Perfect launched a kiwi starfruit–flavored SKU last summer and has another “exciting flavor innovation” that Hufnagel couldn’t divulge just yet on the way for summer 2023. The brand also plans in the near future to introduce a 15.2-ounce vessel that won’t be fully rolled out until 2024 but might eventually replace the current 12-ounce bottle. “This will be our immediate consumption package,” he says. “We will see if we make the full transition.”