Consumers are looking to get more out of what they drink. Why just stay hydrated when you can also lose weight, improve mental sharpness, or get fit? This increased demand for functional products is reshaping the beverage industry, but how and to what extent?
A packaged goods company wanted to specifically look at investment trends focused on functional beverage startups. By using Quid’s company dataset, which contains the latest information on approximately 2 million companies, we identified 805 companies that were founded over the last ten years. In a Quid network, each node represents a body of text, in this case a company profile. Links between nodes represent semantic similarity between the companies. The stronger the similarity, the closer they get pulled in together.
A third of all beverage companies founded over the last decade focused on Energy/Sports Drinks and Supplements (seen below in light green). This is the largest cluster in the Quid company network, followed by Pharma and Biotech (24%)—companies that are producing products with medical or health-related applications—and Juices and Soft Drinks (17%). Fewer companies founded during this time specialized in Alcoholic Beverages (14%) and, more specifically, Craft Beer (9.8%).
A deeper dive with the Quid software found that the functional beverage market is highly segmented. Within our largest cluster, Energy/Sports Drinks and Supplements, Quid identified 11 different sub-groups, including hydration products for athletes, vegan and gluten-free shakes, and dietary supplements. SOS Hydration Inc., for example, was founded in San Francisco in 2013 and produces electrolyte replacement drinks that combat dehydration in athletes, including Olympians.
Market segmentation in our second largest cluster, Phama and Biotech, is similarly high with 9 unique sub-groups. This includes anti-allergy beverages, biotech ingredients, and pharmaceutical applications for functional drinks. Within the pharmaceutical sub-group, Quid found the company Prenexus Health, LLC, which focuses on the development of prebiotics, an important complement that acts like fertilizer for the good probiotic bacteria in your gut. ClostraBio, which appeared in the anti-allergy sub-group, is creating medicines that prevent against allergic reactions and AlbaGreen, a Swedish biotech firm founded in 2012, is developing drinks with cholesterol-lowering properties.
Companies whose functional products featured a focus on sugar-free or low sugar beverages saw the largest jump in total number founded, with a 150% increase compared to the previous half of the decade. This includes Koia, a company founded in 2014 that sells high protein, low sugar beverages. Beverages for health and medical purposes also saw strong growth during the same period. For instance, Guangzhou WangLaoJi Great Health Industry Company, who has received 115.4 million dollars of funding in 2017, manufactures herbal medicines and healthcare products.
Market segments that saw flatter or no growth during this period include Vegan/Gluten Free Shakes, which had no companies founded between 2013 and 2018, and Additives, which only had one. To chart the evolution of the industry over time, we compared the types of companies founded over the last five years (2013 to 2018) to companies founded in the previous five (2009 to 2013).
Quid reveals that most of the companies producing functional beverages were founded at least five years ago. Those that manufacture medical beverages received the highest levels of investment, followed by dietary supplements and cold pressed juice. The most recent entrants to the industry were those that produced functional beverages with a specified emphasis on reduced sugar.
The Quid scatterplot below shows the maturity level and investment totals of each sub-group, with the size of the nodes indicating the number of companies founded.
With Quid, we can also see that investment in beverage startups has gradually increased over the past decade with some volatility. Overall investment across sub-sectors roughly doubled between 2014 and 2015, and then after a downturn, roughly doubled again in 2017. Collectively, the industry has received total investments of $3.8 billion in the last decade.
Chinese firms that develop healthy ingredients or dietary supplements received the largest share of investment over the past two years. Other top recipients include functional beverage manufacturers such as Ancient Brands and Soylent Corporation. Ancient Brands manufactures protein rich supplements in forms of protein or protein meal, and Soylent manufactures supplements that can be personalized for different body types.
The vast array of views and analytic tools in Quid gave our client a bird’s eye view of the functional beverage industry and pulled out a few key insights. For one, most companies producing functional beverages were founded in 2013 or earlier, with the highest levels of investment in medical beverages and dietary supplements. While energy and sports drinks make up the largest portion of the industry, Quid found that pharma and biotech companies represent a growing market share with companies that are working on applications that range from anti-allergy ingredients to prebiotics and cholesterol reduction.
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