Beverages

No Rest for Relaxation Drinks

25% annualized growth expected through 2016

SANTA MONICA, Calif. -- Growing per-capita disposable income and demand from convenience stores and other retail outlets is projected to benefit the relaxation-drink industry through 2016, according to a new report from IBISWorld.

Also, existing companies are already signing nationwide distribution deals, which indicate market acceptance and familiarity with relaxation drinks, so they are not growing from the extremely low base they did over the prior five years.

The relaxation-drink industry's fast-paced growth was possible because it was from an extremely low base and because there is an established market for sleep aids and products that help people focus, according to the report.

IBISWorld estimates industry revenue grew at a 68.7% annualized rate over five years, including a 49.5% increase from 2010 to 2011 to total $73.7 million. Relaxation drinks will make up about 0.3% of the fruit juice and functional beverage production industry in 2011.

There are expected to be nearly 390 different types of relaxation drinks out on the market in 2011; however, the market is not yet saturated. Based on National Health Institute findings, IBISWorld estimated that there are more 53 million Americans that have trouble sleeping. Not only are such people a potential market but also people who have trouble focusing are likely to consume relaxation drinks that are marketed for that purpose.

“The relaxation-drink industry is already established and will be growing from a higher base; the potential demand pent-up in the market for relaxation drinks outweighs possible challenges to the industry,” said IBIS World analyst, Agata Kaczanowska.

Regulators may draw up stricter guidelines for beverages, which could force companies to change product formulas or labels, and could also result in high expenditures on lobbying. However, the prospect of partnerships with or acquisitions by beverage behemoths like Coca-Cola or PepsiCo is a positive driver for companies in the industry that would greatly benefit from such arrangements.

Higher demand from consumers with increasing disposable income and greater demand from convenience stores and other retailers is also expected to propel industry revenue growth. Consequently, Santa Monica, Calif.-based IBISWorld forecasts slower annualized industry growth of about 24.8% over five years to $223.5 million in 2016.

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