Functional Water Industry as a Potential Industry for Investment
This report evaluates the functional water industry that has experienced rapid growth in recent years as a result of apparent consumer preference changes towards healthier alternatives to soft drinks. The industry displays a low barrier for entry as a result of the varied opportunities of differentiation as a result of the different segmentations in terms of ingredients and their benefits along with the distribution channel and geographical reach. The industry represents an ideal industry to invest into according to the evaluation carried out in this report.
The purpose of this report is to evaluate the viability of the functional water industry as a potential industry for investment. In the year 2017, the size of the global functional market was estimated to have surged to USD 10.34 billion and it is expected to achieve a valuation of USD 18.24 billion by 2025 (See Appendix I. The functional water industry has received increased attention from the consumers as they have started growing aware of the drawbacks of sugar containing soft drinks. Instead of soft drinks, functional water has been positioned as a product that is considered by consumers to be much healthier alternatives to soft drinks with high sugar content. The marketing structure chosen for this report is segmentation of consumer markets.
Utilising the marketing structure of segmentation of consumer markets, the key variables that can be attributed to segment the markets are as follows: a. By ingredients., b. By distribution channels., c. By geography.
A wide variety of functional water or enhanced waters as they are referred to are fortified with several micronutrients and this inclusion of innovative new health oriented ingredients are used by brands to differentiate their products in the functional water industry (Ivana and Marija, 2019). There has been an observable trend towards plant-derived ingredients. While another differentiation is observed in terms of ingredients apart from micronutrients, infused functional waters are functional waters containing botanical extracts (Swat and Wybieralska, n.d.). However, the demand for micronutrients infused has been stronger (Appendix II) compared to that for functional waters infused with botanical extracts (Fortune Business Insights, 2018).
The distribution channels is another key variable that affects functional water sales as it is generally observed that supermarkets generally are responsible for the majority of the sales of functional water products. This is helped by the bundling strategies adopted by “mass merchandisers” which results in more economic prices. However, given the rise of popularity of the product, it can be estimated that more personalised distribution channels like online retail and convenience stores will gradually contribute to higher sales.
The North American market, which is a leading example of developed markets, have steadily high demand for functional water with the industry showing very strong growth in the markets of the United States. This has resulted in large soft drinks manufacturers from the United States to veer into the industry of functional waters. Similarly, Asia Pacific also demonstrates an increasing demand for functional water as consumers within those markets are experiencing a change in their preference patterns as they tend to opt for the more health alternatives to soft drinks (GM Insights, 2021).
“Segmentation, targeting and positioning are not relevant to this industry”
Within the functional industry it would be incorrect to state that segmentation, targeting and positioning is not relevant within the functional water industry. The functional water industry and its offerings offer many novel ingredients which leads to a market filled with options where the products claim to offer a diverse set of benefits for a similar category of products. For example, Coca-Cola Co.’s Smartwater antioxidant and smartwater alkaline are products that offer vapor distilled water with addition of electrolytes as micronutrients. On the other hand, the “Al Ain Zero Bromate” water by the Agthia Group is a product specifically targeted at kidney patients and pregnant women (Mordor Intelligence, 2019).
The functional water industry is estimated to have a strong trajectory of growth and should provide low barriers for entry given the freedom to differentiate the product and thereby dictating a market share of the product.
It is recommended to invest in this industry in a developed industry like the United States using a unique micronutrient ingredient as a differentiating factor.