We detail the state of the specialty beverages sector in 2021 and expectations for 2022.

Specialty beverage space is in a period of change as trends evolve

Some manufacturers have noticed changes in consumer habits around specialty beverages and have started to supply the market with new and interesting product varieties. Adam McCleery reports.

As consumer tastes continue to evolve, the specialty beverages market continues to reap the benefits.

In recent years, the specialty beverage space – everything from craft beers and spirits to sugar-free juices and sports drinks – has seen a spike in popularity on the back of several factors.

Research figures from Ibis World give some insight into the current state of the specialty beverage market in Australia.

The Australian beverage market grew by 9.2 per cent over the past year with earnings expected to see growth up to 18 per cent per year soon.

As of 2022, the Australian functional beverage market was worth $451 million, with an expected growth rate of 2.8 per cent by the end of the year, which is a large increase considering the market only saw growth of 0.9 per cent from 2017 to 2022.

Functional beverages are non-alcoholic drinks that contain non-traditional ingredients such as vitamins, minerals, fibres, probiotics, and added fruits. This includes products like energy drinks, sports drinks, and enhanced water.

The report attributed functional beverage market growth to several factors including a rise in health consciousness in consumers, which is causing an increased demand in products like nootropic and other health drinks.

The main factor expected to impact the growth of the functional beverage market is a rise in competition as manufacturers continue to move into the space. However, the expected containment of the COVID-19 virus will also help production and distribution numbers.

Currently, there are 32 manufacturers of functional beverages in Australia including Coca-Cola Amatil, Asahi Holdings and Nexba Beverages. However, these figures are expected to grow with the popularity of functional beverages.

Innovation in energy drinks is expected to slow as manufacturers address product variation and innovation in other areas of functional beverages.

One such beverage manufacturer, Nexba, is seeing continued success in the specialty beverage space and founders Drew Bilbe and Troy Douglas expect that growth to continue well into the future.

During his early market research, Bilbe discovered that consumers were looking for healthy alternatives to traditional soft drinks.

“It was only about one to two per cent of the beverage market and it seemed like they just weren’t resonating with Australian consumers because they were packed full of sugar, which caused consumers not to recognise them as a better-for-youbeverage,” he said.

“At that time, we didn’t have much else. There were traditional energy drinks, but people understood they weren’t healthy. This concept of better-for-you-beverage space really didn’t exist in Australia.”

A jump in brand awareness for Nexba was also an indicator that the consumer was eager for more specialty beverage offerings, whether better-for-you or functional and similar offerings.

The rapid growth of Nexba wasn’t just an Australian market phenomenon, the company launched its line in the United Kingdom in 2018 and within a few years became the nation’s number one Kombucha brand.

“But the idea of functional health, gut health, cognitive health and all these other things have been a more recent focus, COVID has helped drive that. People are more aware of their immune system requirements, for example,” said Bilbe.

According to figures from the Australian Bureau of statistics, non-alcoholic beverage consumption accounted for 22.6 per cent per daily capita in 2019-20, indicating

a push towards specialty beverages pre-pandemic.

Non-alcoholic beverages were also the second highest growth area in food and beverage for the same period (1.7 per cent).

Further figures from SmartCompany Plus research also found a rising trend in consumers looking for better beverage options from the specialty space.

“The rise of non-alcoholic drinks reflects a broader trend where consumers are choosing to drink less, but drink better. We expect this trend to continue,” said Bree Coleman, Endeavour Group’s head of merchandise transformation.

The research also stated that large manufacturers are beginning to change up processes to meet new consumer demand, with many committing to 20 or 30 per cent of their portfolios now covering non-alcoholic beverages.

Meanwhile, the hot drinks market is also expected to experience growth in the coming years with Global Data predicting the market will be worth $4.1bn by 2024, at a compound annual growth rate (CAGR) of 3.5 per cent.

“While hot coffee continues to reign, hot tea is also widely consumed among the Australians. Hot coffee and hot tea are gaining favour among health-conscious consumers of diverse age groups, who are gravitating towards novel tea varieties such as specialty, matcha and herbal teas,” said Anchal Bisht, consumer analyst at GlobalData.

“Considerable opportunities are emerging from the foodservice sector, where these tea varieties are finding more space in their menus as consumer preferences evolve, aiding the overall category growth.”

Data from the Endeavour Group, owners of Dan Murphy’s and BWS liquor, also showed an overall 83 per cent increase in sales over the past 12 months, indicating further growth in specialty alcoholic beverages.

“The majority of customers are choosing non-alcoholic drinks because they want to moderate, which is a reflection of a broader trend of Australians drinking less but better,” said Coleman.

“Many also simply enjoy the taste of the new wave of non-alcoholic drinks. The quality and innovation are quite incredible.”

Both BWS and Dan Murphy’s are expanding their range of non-alcoholic beverages to meet the increase in demand.

Dan Murphy’s will soon boast one of the country’s largest offering with more than 200 different products to choose from with everything from craft beer, rosé, and bubbles to craft gin and bourbon.

A 2019 craft beer survey also found that 66 per cent of respondent enjoy following the latest craft beer trends and 85 per cent of respondents were excited about the direction of craft beers.

Non-alcoholic beer and non-alcoholic wine have seen an increase in popularity with consumers looking for an alternative option.

“Non-alcoholic beer has been around for quite some time, and brewers have really managed to perfect a product that tastes like the alcoholic version. Now, we are also seeing a great range of delicious non-alcoholic craft beers explode on the scene,” said Coleman.

“Many winemakers have spent the last few years refining methods to make non-alcoholic wines, and many craft the wines as they normally would, and then remove the alcohol, which means the wines have all the flavours, but none of the alcohol.”

Although beer and wine are the best-selling non-alcoholic drinks, the sales for non-alcoholic spirits (136 per cent growth in the last 12 months) and premix (968 per cent) are the fastest growing.

Australian’s consumption of beer and wine account for 78 per cent of total consumption. Spirits also make up 20 per cent.

Innovation in the specialty beverages space is not expected to slow down any time soon – The Australian Beverages Council predicts further investment into the sector.

“The ABCL understands the risk commonly associated with pioneering new products. This uncertainty is a hindrance to creating jobs within the sector and expanding into critical markets at home and overseas,” said ABCL CEO Geoff Parker.

“Our members are constantly innovating through new product development, broadening their customer base and creating economic certainty for their employees and communities.

“Programs such as the Australian Economic Accelerator show our members that they have a partner in the Federal Government who will help ensure they remain competitive and resilient.”

In terms of near future forecasts for the specialty beverage sector, research from Drinks Trade concludes long-term recovery from the impact of COVID-19 pandemic in the Asia Pacific market (APAC) won’t return to pre-COVID levels until 2025.

Meanwhile, when it comes to exports over the pandemic years, Australian beverage exports decreased from $271 million in November 2021 to $249 million in December of the same year. It’s hoped that the easing of international border restrictions will see that number climb.

Possibly in response to the challenges presented by international border closures and a slowing of global supply chains, Asahi Beverages pledged to source its barley from Australian farmers.

Moves like this demonstrate the beverage market’s ability to overhaul processes when presented with external problems or while looking to evolve.

“Under the old model, the grains we purchased generally weren’t segregated but this program allows us to track the provenance of barley used to brew our major beers and gives us direct relationships with more farmers,” said Asahi Beverages’ group chief brewer Jaideep Chandrasekharan.

“Until recently, the expertise to develop and maintain an intricate program like this at scale didn’t exist in Australia but we’re now working with supply chain managers Origin Trail and Pure Grain to bring it to life.”

A recent, and substantial, example of how innovation in the specialty beverage space can bring with it early success is the White Claw Hard Seltzer.

Launched in 2016, White Claw Hard Seltzer was an instant hit with consumers looking to change up their traditional drinking habits.

Now the company has more than 40 per cent of the US’s hard-seltzer market, almost three times the size of its nearest competitor

White Claw was released in Australia in 2020 and since then has experienced popularity here too, becoming the country’s top-selling hard seltzer inside of its first year, selling 7.8 million cans.

With 30.9 percent volume share of the hard seltzer market for the last quarter, Lion attributes White Claw market dominance to taste, genderless appeal and innovative tactics that continually seek fresh ways to connect with the modern drinker. All are indications of how changes in consumer tastes and habits can lead to success for manufacturers.

It’s an exciting time for the specialty beverage space on the back of new a string of innovations to traditional products, such as going sugar free and other factors like changing tastes and the success of other traditional beverages such as soft drinks, spirits, and beers. F