Decoding demographics: Canadean’s Health in Beverages Congress1 November 2012
Demographic trends in developed economies and emerging markets will define how healthy beverage manufacturers develop and market their products in the years ahead. An examination of this complex issue, explored at Canadean’s recent Health in Beverages Congress, reveals some startling opportunities.
The recent Health in Beverages Congress 2012,which took place in Brussels in September, raised many interesting points about the future for the healthy drinks market - from the definition of a 'healthy' drink to the role of new additives and how to understand key market sectors. One of the most compelling analyses at the conference, which brings together the newest strategies for increasing profits in this growing market sector, was the insight into how changing demographics provide different opportunities in the developing and developed world.
Regional differences in demographic trends were a hotly debated issue at the conference, as they will play a powerful role in shaping marketing strategies in the years ahead. As Neil Hendry, managing director of Canadean Consumer explains, this topic is more complex and nuanced than it may initially appear.
"The topic seems to crudely imply that healthy beverage companies should be identifying a few high-growth demographics and targeting them with functional products. The undertone is that Eastern Europe and Africa should be mentioned as the most exciting area. This is overly simplistic - many consumers in these countries have no need for the sophistication of some of the drinks these companies make," he says.
"Moreover, there are examples of success stories in the most developed countries with both stagnant population and economic growth, and also existing product concepts that have turned into successes because they tap into relevant consumers."
For Hendry, it is clear that companies in the healthy beverage market can target all demographics, provided that their product formulation, positioning and marketing is sufficiently refined to tap into the needs of each segment of the market. In short, there are opportunities everywhere.
Defining the market
To some degree, the penetration of a given demographic or, indeed, a national market depends on what is seen by consumers as a 'healthy beverage'.
"It's a clichéd question, but what actually is a healthy beverage? It's in the eye of the beholder, "says Hendry. "For the Western consumer, Benecol contains the unique ingredient plant stanol ester, proven to lower cholesterol. Then there's milk, which, to millions of consumers in developing nations, is still the epitome of a healthy beverage. Plant stanols mean little to them when severe calcium deficiencies affect their muscles, bones and nerves."
In terms of population growth, developing nations certainly provide a huge opportunity. While the UN predicts a 2% growth in population for developed nations over the next 50 years, its forecast for the developing world is 58% growth. But Hendry believes that this statistic is, to some extent, misleading.
"That's 29 times faster growth. The conclusion here, surely, is that Western brands should immediately make their presence felt in developing markets, letting sheer population growth do the work. Meanwhile, the developed nations are stagnant, plagued by complicated marketing messages, benefit scepticism, regulation headaches, and fierce competition. Well, it's certainly the case that the emerging markets hold some exciting opportunities, but we shouldn't discount the developed markets just yet. Everybody is a demographic of interest," he says.
To illustrate his point Hendry points to Gatorade, which he believes is a perfect example of reverse innovation: led by the wants and needs of consumers in emerging markets and then exported to developed markets.
"The concept behind Gatorade originated in the early 1960s in Bangladesh," he notes. "A huge number of people were suffering from cholera, which causes diarrhoea, and, in turn, severe dehydration. The solution was to formulate a drink containing carbohydrates - something medical professionals in the West were highly sceptical about at the time"
"More famously, a short time later, the athletics department at the University of Florida used this knowledge to create and brand a sports drink which helped rehydrate its athletes in order to improve performance. Hence, Gatorade - a product that solves two completely different needs - a medical marvel, and a lifestyle beverage."
Another example is coconut water, which existed as a product for many years, notably in Asia and the Caribbean, but taps into trends in Western markets.
"In the US alone, coconut water is worth over $400 million, says Hendry. "It's not a particularly expensive product, certainly compared with some functional drinks - it just taps into the demographics who had been buying 'traditional' sports drinks for years because they do not know the alternatives. You have to know what makes your consumer tick."
Know your customer
On the one hand, the vast differences in consumer wants in developed and developing countries mean the healthy beverage sector can appear complex, but on the other, it is this diversity that creates opportunity in every market, providing companies understand what their customers are looking for.
Hendry says: "In the more developed nations, there is a need for nuance and sophistication in positioning - it's about how the product makes the consumer feel. It's crucial in a marketplace where competition is fierce and, moreover, where it is increasingly difficult to let health claims do your talking for you because they're so difficult to get through the likes of the European Food and Safety Authority (EFSA). In developing nations, there are huge issues that streamline what a consumer wants and needs, specifically economic and health constraints.
"Particularly in the West, we tend to feel guilty about what we eat. Obesity levels continue to spiral out of control, largely due to the sheer convenience of consuming unhealthy food and drinks. And yet we know it's bad for us. We've never known the effects of poor nutrition more than we do now. That's what brings about the guilt. Guilt reduction used to be about ordering a Diet Coke at McDonald's. It's moved beyond that now, and that's where healthy beverages are well positioned. It's where the fortified orange juice complements the carbonara. If we're going to eat badly, we need something to offset that."
Along with 'guilt-reducers', there is always a gap in the market for lifestyle brands, into which health beverages fit neatly - at least in Western markets. While health drinks were once the preserve of consumers who take a healthy lifestyle very seriously, they have now become brands for those too busy to prioritise healthy living. Their desire to grab some convenient health on the go has become lucrative for the industry.
"What's more, they make a statement about the consumer. We define ourselves by what we consume, and what others see us consume. We want others to see us being healthy, and this is a key driver of lifestyle brands. In terms of marketing, limiting products to specific occasions can be a problem. Lifestyle users are, by their very nature, inconsistent with consumption - in frequency, time of day and so on. Similarly, something that places too much emphasis on complicated science makes the lifestyle user believe the beverage is for someone else," says Hendry.
Aging populations in the developed world present untold opportunities for healthy beverage companies, and yet it is the younger consumers who believe more in the benefits of functional drinks. There is, as such, an opportunity for drinks companies to make younger consumers consider healthy beverages as a form of prevention.
In the developing world, there is a greater need to balance the price point with the perceived potency of health drinks as a fundamental tool in addressing poor health. In other words, consumers may choose a drink because they are ill, not because they want to prevent illness. Comparing US and European markets with the BRIC countries - Brazil, Russia, India and China - the contrasts arising from the diverse interplay of demographic trends become clear.
"In Europe and the US, themes such as guilt reduction are highly important. The consumer wants to feel as though they are being indulged, albeit in a less harmful way than usual. Spend on juices in Brazil, China and India is more health-motivated. Value is also relatively more influential. There is a much more positive picture painted by the growth in per capita consumption and the most exciting growth will be occurring in China," notes Hendry.
For Hendry, the key things that the health beverage industry must understand in order to identify profitable opportunities in different demographics are simple. Firstly, innovation can come from either developed or developing markets, as healthy products have a habit of migrating. Secondly, the perception of what 'healthy' means varies widely between markets.
He also sees a huge opportunity in emerging economies, which will not only increasingly face the problems of aging populations that the West is already experiencing, but also address more immediate health issues, such as communicable diseases. Hendry also points to Canadean Consumer research, which shows that health considerations are more important in beverage consumption in India and China than other regions, especially the West. Coupled with double-digit growth in consumption, this gives the industry huge scope for expansion.