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15 Sep 2020

Econ Digest

Vitamin water:an expanding new segment of the beverage market

Although Thailand’s beverage business has recently shown a slowing trend, it is expected that healthy beverages will become products that meet the needs of the new generation of consumers. In particular, vitamin water (a category of water plus beverages) has become an interesting new segment of the beverage market. It is colorless, transparent and able to quench thirst like normal drinking water, but contains nutrients that the body cannot make on its own such as vitamin B and C, plus other nutrients, as well as smelling and tasting different from drinking water. It contains few calories and little sugar, and thus is in line with the current healthy trend.    


          KResearch views that the popularity of vitamin water among consumers comes from self-care awareness and the need to boost disease immunity in today's urban life. On the other hand, the move from bottled drinking water or mineral water to nutritious drinking water (water plus beverages) will create added value for products and increase operators' profitability. At the same time, it will also provide new marketing channels for operators trying to adapt to more stringent government policies on products that affect health (i.e., adjustment on alcoholic beverages/sweetness taxes ), which force operators of products such as soft drinks, green tea, fruit juices and alcoholic beverages to adjust production plans to deal with increasing operating costs.

         KResearch preliminarily estimates that the market value of vitamin drinks in Thailand in 2020 will be at least THB5.5 billion[1], accounting for about 1.2% of the total beverage market value, while it is expected to climb to THB6-7 billion in 2021. In regard to the changing competitive landscape, it has been found that the trend of the increasing market value of vitamin beverages may be driven by price levels being as high as premium bottled drinking water and an increase in sales volumes. Although this is expected to help boost the saturated beverage market, a leap in growth may not be seen due to the following reasons:   

  • The increase in sales volume may come from consumers shifting from consumption of these two substitute products: 1) Functional beverages with the same health-related selling points as vitamin water but which may contain higher sugar or calories; 2) Mineral water, which is premium bottled drinking water, for which consumers' purchasing decisions are based on the same emphases on quality of product and health outcome as vitamin water. The price levels and target markets of these two products are similar to those of vitamin water, reflecting that the increase in the market value of vitamin water may partly be taken from the market share of the foresaid beverages (on the premise that consumers' beverage consumption expenditure holds constant).
  • The severity of price competition is expected to increase from existing players in the beverage industry that may cross the production line or shift to new products in order to reach new customers and increase profit margins, as well as from new players from other industries such as food businesses or health and beauty related businesses (dietary supplements, hospitals), as they are optimistic about the potential business opportunities and want to compete for market share. As the number of players rises, it will lead to more intense price competition, which in turn will put pressure on producers' profitability as well as on future market growth. This will be especially true if large players with preexisting sales channels and the ability to boost their sales volumes through various gimmicks enter into this market.

                 KResearch estimates that the value of the Thai beverage market in 2020 is likely to be THB445 billion, contracted 3.0% YoY[2], mainly due to the shrinking of alcoholic beverage sales. The entire beverage industry has been hit by the COVID-19 pandemic, and has shrunk for the first time in a decade due to sales channels being restricted during the lockdown period, as well as weak consumer purchasing power along with the economic conditions. However, the domestic beverage market value is expected to improve slightly in 2021.

     

    [1] Estimated based on the sales of operators in Thailand's vitamin beverages market. 
    [2] The alcoholic beverage market value is THB167 billion (-8.3%YoY) while the non- alcoholic beverage market value is THB278 billion (+0.6%YoY)



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Econ Digest