This presentation was given by Ms Natasha D'Costa from Frost & Sullivan, at the Vita Foods Conference in Hong Kong, 2-3 September 2014

1. APAC Functional Beverage Industry: Exploring Trends, Challenges & Developments
January 2014

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The Frost & Sullivan Story Our Global Footprint 40+ Offices- Scanning the Globe for Opportunities and Innovation
2
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Chemicals, Materials &
Foods
Our Industry Practice Food & Beverage – Key Focus Areas
 Omega Fatty
Acids
 Direct fed
microbial /
Prebiotics
 Protein
Ingredients
 Soy based
ingredients
 Whey Protein &
Casienates
 Vitamin
Premixes
 Botanicals
 Other Functional
Ingredients
Health &
Wellness
Feed
Additives
Food
Additives
End Use
Markets
 Vitamin Premix
 Growth
Promoters
 Enzymes
 Amino Acids
 Probiotics
 Dietary Fibers
 Coccidiostats
 Preservatives
 Other Feed
additives
 Emulsifiers
 Colors
 Preservatives
 Flavors &
Fragrance
 Antimicrobials
 Enzymes
 Anticoagulants
 Sweeterns
 Starch
 Stabilizers
 Anti caking
agents
 Acid Regulators
 Moisture
retention agents
 Processed Foods &
Snacks
 Beverages
 Baby Foods
 Fresh & Frozen Foods
 Dietary Supplements
 Functional Foods &
Beverages
 Animal Feed &
Nutrition
• Morning Goods / RTE
/ RTF / RTC
• Cooking aids /
Prepared
Convenience & staple
foods/Instant mix
• Oils & Fats
Key Areas under Food & Beverage
• Unparalleled Market
Coverage
• Market and Trends
Reports and Alerts
• Articles, newsletters,
white papers, insights
• Consulting
engagements with
ingredient and food and
beverage companies
• Best Practices
Research
Key Focus areas under Food & Beverage Program

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•Introduction— Health and Wellness Mega Trend
•The Nutraceutical Market : Food Fortification Driving APAC Growth
•Trend Watch: What’s HOT Globally and in APAC
To Do List

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Food Safety
Globalization and Changing Economy
Health & Wellness
Sustainability
Consumer
Seeds and Traits $43
Agricultural Production (Includes Animal Feeds) $3,917
Agricultural Logistics
$646
Food and Beverage Logistics
$168
Retail Grocery (Food at Home)
$7,664
Retail Food Service
(Food Away From Home)
$3,544
Food Processing
$4,841
Software for Ag $2.15
Software for Logistics $2.89
Software for Processing $7.94
Software for Retail
$18.05
Food Packaging
$261
Processing Equipment
$223
Food Additives and Supplements
+$300
The cumulative value of all revenue derived from the global food and beverage value chain was over $22 trillion dollars in 2013, representing nearly 30 percent of the entire world’s economy.
Food and Beverage Market: Generalized Value Chain, $US Billion (Global), 2011
Source : Frost & Sullivan analysis.
Health and Wellness key driver of the $22 trillion global Food and Beverage Value Chain

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Lifestyle ailments are a key demand driver for H&W products
In 2013 42 per cent of global deaths were caused due to life style based preventable diseases rising from less than 25 per cent in 2000.
Cardio vascular diseases are the key cause of lifestyle related death with global healthcare costs estimated at over 12 billion in 2013

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Increased food expenditure a result of rising affluence and population
0
1000
2000
3000
4000
5000
6000
Population Size (Millions)
Population Size and Growth By Region
2012
2050
Asia: The largest and one of the fastest growing markets
-0.20%
2.40%
7.10%
5.80%
3.60%
2.10%
-1.00%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
GDP Growth Rate
GDP Growth for 2013
Asia: Fastest growing economy
Food today is thus expected to perform the dual role of providing nutrition as well as preventive medication as part of the growing demand for health and wellness based food
Asia, driving food consumption, will also see growth in health and wellness products

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0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2013
2025
2013
2025
2013
2025
2013
2025
2013
2025
2013
2025
2013
2025
2013
2025
2013
2025
2013
2025
2013
2025
2013
2025
2013
2025
Poor (<6K)
Working class (6K- 29K)
Middle Class (30K -60K)
Upper middle Class (60K-95K)
Rich (>96K)
Income distribution by Country- Growing affluence
Income inequality and lack of efficient distribution of wealth remains a key economic growth obstacle across the scope of the study
8
Note*: Income levels are standardised based on average earnings per year and extrapolated based on country purchasing power parity to establish a realistic picture.
Korea
Singapore
Indonesia
Malaysia
India
Thailand
Japan
N.Zealand
China
Hong Kong
Australia
Vietnam
Taiwan
Income split in Selected Countries, 2013,2025

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Personal Health
Eye Health ( Lutein and Bill Berry )
Vitamins
Anti-aging
Probiotics ( gastric)
Milk thistles ( liver)
Biotins ( hair)
Collagen and Placenta( Skin)
Other Chinese herbs for overall health or blood
Consumer awareness and push driving H&W
Drive towards sustainable living and preventative medication has made Health and Wellness based food products and supplements main stream.
Consumer trends play a big role in product development

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Managing costs of lifestyle diseases will demand more emphasis on prevention
and wellness
Disease/Care
Management
Healthy/
―Worried Well‖
―At Risk‖ Undiagnosed Chronically Ill
Managed
Chronically Ill
Unmanaged
End
of Life
Continuum of Care
Size of Impacted Population
Goal:
Keep
People
Healthy
Longer
Goal:
Manage
or Mitigate
Risk Goal:
Diagnose
and
Reduce
Treatment
Delay
Goal:
Manage
Goal:
Move to
More
Interaction
and
Self-Mgmt
Goal:
Informed
Decisions
Increasing Healthcare costs pushing emphasis from
Acute Care to Prevention
Prevention/Wellness Track, Predict, Intervene, Manage
$$

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Treating Sickness
Move to
Health and Wellness
Self Care
Diet
&
Nutrition
Humor
&
Joy
Lifestyle
& Stress Reduction
Mind
Body & Spirit
Exercise & Fitness
My Health & Wellbeing Databases
Nutraceuticals

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North
America
24%
Western
Europe
23%
Asia
Pacific
37%
Rest of
the World
16%
Note: All figures are rounded. Source: Frost & Sullivan analysis.
Decreasing Stable Increasing
Market
Stage
Growth
Market
Revenues
$175 B
(2013)
Market Size at
End of Forecast
Period
$225.0 B
(2017)
5-year Forecast
Market Growth
Rate
7.0%
(CAGR)
US, Europe and Japan
are the most advanced
markets, while India ,
China and Brazil are
the key growth
geographies.
Global Market, 2013
• The global nutraceuticals market has seen
its maximum growth in the last decade.
• The industry is expected to maintain
comparable growth till 2017 driven by growth
from high healthcare costs and increased
interest from the developing world.
Nutraceutical Demand Split by region, (World), 2013
Global Nutraceutical Market: ―Feeding Consumer
Requirements‖

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Bakery
Confectionery
Dairy
Energy Drinks
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
0% 20% 40% 60% 80% 100%
33%
36%
31%
Nutraceutical’s Industry , Key
Products market, 2013
Functional Food
Funtional Beverages
Dietary Supplements
Expected Market Size
2014:
US$ 190 Billion
Functional Beverages Driving Nutraceutical Growth
Functional Beverages
• The fastest growing nutraceutical market: 9% CAGR
• Dairy is a major volume growth area with growing
nutraceutical penetration
• Expected to account for over 40 per cent of overall
consumer product demand by 2025
Nutraceutical Industry: Key Focus areas,
(Global),2013

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Market Dynamics driving Commercial category beverage growth
APAC BEVERAGE MARKET 30 Bn USD
Health & wellness Food & Beverage Trend
Gen-Y population
Growing incomes and affluence
Growth in premium beverage consumption
Rise of Functional Beverage Category
Rise of constant product innovation (Liquid Breakfast)
Rising Urbanization
Rise of convenience beverage categories
Cause (Trend)
Effect (Product)

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FICCI
Effective Global marketing Strategies and their APAC impact

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USA: Market Size: $1400 Mn Market CAGR: 12%
Europe:
Market Size: $810 Mn
Market CAGR: 8%
Trend 1 : Condition Nutrition- Different Cultures, Different Concerns
Asia Pacific : Market Size: $350 Mn Market CAGR: 15%
Rest of the World
Market Size: $640 Mn
Market CAGR: 13.3%
Heart Health concerns among consumers differ from region to region based on genetics, level of economic development and awareness

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Ingredient opportunities turned consumer stars
Wellness Works USA launched Oatworks beverages in 2013 (smoothies) boasting benefits such as “reducing cholesterol and aiding digestion”. The oat and fruit smoothies contains 100 per cent real fruit juice, puree with no added sugar and PromOat, a proprietary water- soluble oat fibre ingredient from Sweden.
Beta- glucan rich Oat based beverages and Omega-3 infused water have become the latest stars in the functional beverage industry in 2013.
Ocean Omega USA launched Omega-3 infusion waters in 2013. These products are fortified waters with a variety of antioxidant rich flavours aimed at the heart health market. The product uses proprietary Ocean's omega technology to provide fortified water products aimed at this growing market

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The APAC Story : Focus still on overall Health & Energy
APAC country’s still focus on basic nutrition and providing beverages that cater to energy, sugar reduction and hydration due to the environmental climate. The AEC will result in great product differentiation as beverage products vary greatly from country to country

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Trend 2 : Focus on Natural - Ingredient Shift
USA: Stevia a natural sweetener has replaced aspartame as the sweetener of choice in most functional beverages
EU : Synthetic bet-carotene a traditional orange juice flavour and colour has been swapped for natural variants
•Rising demand for substituting synthetic ingredients in beverages with natural ingredients such as plant extracts due to worries over synthetic variants safety.

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The APAC Story : Natural products are governed largely by local offerings
When it comes to natural products local vendors are considered the better suppliers in APAC due to the perception that local ingredients are more viable and tested natural ingredients. This has given rise to the growing demand for local RTD tea products and indigenous flavoured beverages isolated to the countries in this region. The AEC with its open single market will increase internal competition in these areas while providing these manufacturers with better opportunities to develop for export markets

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•Not “Think Global and Act Local”
•Local Story. Country specific products
•Leverage local ingredients, local flavors
Note: All figures are rounded, Source: Frost & Sullivan analysis.
Trend 3: The Glocal Phenomenon- Thinking Local acting Global
Key Trends India Functional F&B Market
•Marine Oil Based Omega -3
India
World’s Largest vegetarian population.
Over 30 per cent of 1.3 billion Indians are vegetarian
Focus on source
Vegetarian Based Omega -3 Juice
Yoghurt based Probiotics
Consumers unwilling to pay premium for a product made at home and part of their staple diet. Over 50 lakh litres of milk are purchased each day in Indian metro about 20 per cent of which is converted to curd
Focus on cultural formats
Probiotic Smoothies

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Trend 3: The Glocal Phenomenon- Ethnic ingredients go global
•As the world becomes a global village there in increased interest in indigenous ethnic products from ancient civilizations products as a source of nutrition particularly in beverages
Guaraná Antarctica is a guaraná-flavoured energy drink, originating in Brazil and manufactured and distributed by Anheuser- Busch InBev. The drink is produced only in three countries (Portugal, Brazil and Japan). Due to its popularity as a natural stimulant it is now one of the worlds top 15 drinks
Ayataka is a green tea based drink that has become Coca –Colas 15th one billion dollar brand in 2013. The tea claims weight management benefits and while it is produced in Japan is quickly becoming a global favourite

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The APAC Story: Ethnic Flavours dominate local offerings
•As the world becomes a global village there in increased interest in indigenous ethnic products from ancient civilizations products as a source of nutrition particularly in beverages
The calamondin or calamansi, is a fruit tree in the family Rutaceae native Asia.. The fruit is indigenous and widely cultivated in the Philippines . Calamansi juice is produce by manufacturers in the Philippines to provide local flavour with natural ingredients.
RTD Tea dominated demand across APAC countries the tea claims weight management and health living benefits. Though adapted for APAC markets a lot of these teas are produced by Japanese manufacturers except for local companies such as Sinar Sosro and Orang Tua.

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Trend 4: Demand for on-the go formats
•Beverages are no longer expected to serve as adjuncts to meals but provide as much nutrition as the meal itself especially in the breakfast sector.
•Over a third of the worlds population skips breakfast every day giving rise to key opportunities in this segment

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Trend 4: Demand for on the go formats– Liquid Breakfast
Liquid breakfasts sales in developed countries have grown explosively over the last 4 years to account for nearly 5 per cent of the breakfast foods market in 2013.
Kellogg’s manufactures breakfast cereals and in 2013 launched its Kellogg’s breakfast to go range as sales of liquid breakfast products continue to skyrocket
Sanitarium’s Up & Go was one of the earliest brands of liquid breakfasts and continues to be a global market leader in this category accounting for over 95 per cent of sales in the ANZ region in 2013.
All major breakfast food manufacturers now have a liquid breakfast variant to stay competitive. For eg: PepsiCo is introducing a Quaker-oatmeal-based drink in Brazil and a offshoot of Mountain Dew, which provides citric acid along with the brand's familiar caffeine kick.

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Trend 4: APAC story: Demand for on the go formats– Liquid Breakfast Options
While liquid breakfast catches on in ANZ APAC is witnessing a growing demand for milk fortified with local natural ingredients aimed at providing energy to address micronutrient deficiency claims in the local diet.
Nestle has introduced a version of Milo called PROTOMALT with malted barley extract, B Vitamins and Magnesium providing nutritious sources of energy aimed at children.
Vthai food products has Vfresh basil seed drinks aimed at a variety of daily diseases including constipation, controlling blood sugar and diarhoea. It is available in a tea format is highly popular in Thailand
With growing focus on breakfast many beverage manufacturers in APAC are focussing on this sector as a key growth area especially with milk and tea formats that are already well accepted in the region

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Trend 5 : Changing demographics, Changing decision makers
As global population demographics change immense stress is being placed on health Food & Beverages to cater to the need of select demographics such as women and children and their nutrition.
Challenge : Providing nutrition for children burdened with extremely high educational and social expectations
Challenge : Providing nutrition for on the go mothers and women looking to provide best nutriton on tight budgets and time schedules

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Trend 5 :APAC :Changing demographics, Changing demands- Women’s Health
Women’s Health beverages cater to different demands as increasing women join the workforce globally leaving lesser time for nutrition planning
As inner health becomes a key cause for concern in Indonesian women. Local flavours such as Jamu are witnessing popularity due to their contribution to various health factors such as menstruation, exhaustion, body shaping and face toning, beauty, younger appearance, glowing skin etc.
Thai-Go™ was developed by Nature's Sunshine scientists as an immune health drink aimed at Asian women. The drink is made from the pericarp (rind) of the mangosteen fruit, and has antioxidant and anti-inflammatory features.

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Trend 5 :Changing demographics, Changing demands- Children’s Health
While Women’s health beverage requirements deal largely with immune and beauty supplementation children's health beverages are largely condition specific in different parts of the world.
Thai based TIPCO has introduced a series of fruit juices fortified with omega-3 DHA and vitamins aimed at addressing malnutrition and providing children with balanced micronutrients
Singapore based Kvas Beverage Enterprise Pte Ltd has introduced a yoghurt based childrens drink that does not need refirgeraton in a bid to encourage children to move away from sugary srinks and incorpooate health digestive bacteria into their daily diet.

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The Way Forward: Key Consumer Growth Areas
Developed World
Condition Nutrition
APAC
Energy Drinks
Weight Management
Inner Beauty
Balanced nutrition
Anti-obesity
As consumer demands change around the world demands from functional beverages will become increasingly lifestyle related and condition specific

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But education and clear messaging to consumers important
•Too many products and too many ingredients with too many benefits – some without validation of claims, some misleading, some lacking clear effect. All complicate messages to consumers
•Products that build loyalty have proven ingredients with clear benefits and positioning
Source: Frost & Sullivan analysis.

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Geography
Challenges
Way Forward
APAC
Complex distribution and logistics scenario
Extremely complex logistical network has resulted in requirement for a pan APAC distribution strategy. Examples of such market expansion firms to be liaised with include DKSH, Zuellig and Li & Fung.
Lack of Product Differentiation
Too much information, very little analysis. Manufacturers need to focus on clear health claims for specific ingredients rather than mixes
Lack of Cultural Awareness
Extremely important to understand the areas culture before launching products. For RTD tea drinks priced at a premium will immediately face resistance in ethnic tea drinking markets of Indonesia and Malaysia.
Expensive Pricing Caters to Premium Segments Only
Functional Food & Beverages and nutraceutical products still focused on premium segments. Needs to emulate Indonesia's RTD tea example and focus on lower segments via smaller packaging formats.
Opportunity Analysis: Regional Opportunities :The Road Ahead
Source: Frost & Sullivan analysis.

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For Additional Information
Natasha Telles D’Costa
Research Manager
Chemicals, Materials and Food & Beverage Practice
natasha.d’costa@frost.com
Donna Jeremiah Director Corporate Communications djeremiah@frost.com