CLEVELAND, Nov. 22, 2016 /PRNewswire/ -- Dr Pepper Snapple Group (DPS) announced this morning that the company will acquire Bai Brands, a producer of antioxidant-infused beverages. In a statement announcing the acquisition, DPS CEO Larry Young praised the innovation of Bai Brands' offerings and identified its success in appealing to consumers looking for healthy, natural beverages.
Bai Brands produces a wide array of still and carbonated beverages containing antioxidant ingredients and using natural flavors and sweeteners. The drinks appeal to a wide base of consumers looking for alternatives to sugary drinks or beverages using processed ingredients.
This move shouldn't surprise anyone who has been looking at the outlook for enhanced and functional waters, which are seeing surging demand especially in comparison to the lagging soft drinks market. According to the Freedonia Group, consumption of enhanced and flavored water is expected to grow nearly 3% per year through 2020 while soft drink consumption is expected to decline.
A major cause of this shift is the demand for healthier beverages that are low in calories and provide some functional health benefits to the consumer. Today's consumer is also more sensitive the effects of artificial ingredients on the body and increasing opts for beverages using a natural sweetener such as stevia.
However, soft drink brands can't simply switch out the sweeteners used in their products. Freedonia Group analyst Christine O'Keefe explains, "Pepsi introduced a new formula with sucralose and acesulfame potassium instead of aspartame, which the company said was driven by consumer concerns regarding aspartame. Sales fell more than those of Diet Coke during the same period through 2016."
Thus, the only solution seems to be introducing new offerings that can meet this need for healthy and natural products without turning off fans of established beverages. Although DPS already has a diverse range of fruit-based and noncarbonated drinks, Bai's experience in the functional drinks market is an added competency for the company.
The global flavors and ingredients used in Bai's products take advantage of another consumer preference. "They use flavors like Congo Apple Pear, Costa Rica Clementine, Ipanema Pomegranate…these are going to appeal to customers more than something like apple or grape. The trends are definitely favoring these more exotic offerings," according to O'Keefe. According to the Freedonia Group, the demand for natural flavors in the beverage market is expected to expand almost 5% per year to exceed $160 million in 2020.
Enhanced waters will not only provide opportunities for beverage and natural sweetener producers, but also will drive increases in a number of other industries looking for growth. For example, the boom in carbonated waters will also lead to advances for aluminum cans as these containers are the most popular for this segment. According to Freedonia, demand for metal cans used in enhanced waters is expected to see a 4% increase in unit terms over the next five years.
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