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From Site Selection magazine, July 2021

Functional Beverages Re-Establish Roots in APAC

Bottling facility in the Asia Pacific
Photo courtesy of Tractus Asia

by James Meisenheimer,
Food & Agriculture Lead, Tractus Asia

Functional Foods” are associated with a modern healthy lifestyle movement. But their origins are found across Asia — from the ancient Vedic texts of India to Chinese traditional medicine. Eastern cultures have a long history infusing tea and water with natural ingredients like matcha, ginseng and moringa that provide health benefits.

APAC represents the largest region of the global US$208 billion functional beverage market and is also the fastest growing. Companies are increasingly attracted to the world’s fastest growing economic region and its 4.3 billion consumers.

The most common ingredient compound used in functional foods are probiotics, which provide many health properties and are found in yogurt, teas, kombucha and single-serve shots. The sale of fermented beverages globally is expected to reach $1.7 billion by 2023, and the APAC region is a major source for that growth.

The rapid growth of functional beverage consumption across APAC is prompting companies to establish a facility under two primary strategies: (1) identifying a co-packer or (2) establishing a captive facility. Companies assessing co-packers typically adopt two sub-strategies. Under a less capital-intensive strategy, a concentrate is provided to a co-packer who provides toll processing and filling. In the more capital-intensive strategy, the company will invest to manufacture the concentrate on-site and deliver it to the co-packer for processing and filling. In the captive investment approach, a company will invest in a complete beverage processing facility from production through delivery.

If an Asia-wide site location analysis is not feasible, then defining the search area so that it encompasses the center of market is a first step. The center of market is often China, where spending on health and wellness products exceeds $70 billion annually. A strategy Tractus has seen over the last several years, regardless of sector, is a China-for-China strategy — where a facility is established in China specifically to meet China market demand.

However, a plant located in China creates risk for companies that also seek to supply product to other markets across APAC. Consumers from Japan to Singapore remain skeptical of purchasing a premium health-promoting F&B product exported from China, and as a result, countries including Vietnam, Thailand and Malaysia are often used to serve the wider APAC market.

Co-Packing Manufacturing

Defining the search area for a co-location strategy also requires consideration of the types of packaging and the presence of companies that have experience with the required machinery.

Common packaging materials in APAC include aseptic multi-layer material, plastic, paper, aluminum, and glass. While the region and its consumers are adopting more sustainable values, PET packaging is the most common. Aseptic packaging produced by Tetra Pak is also widely used across APAC; Tractus recently concluded a co-location assignment that identified and screened over 115 companies with Tetra Pak machines across a multi-country search area.

APAC represents the largest region of the US$208 billion functional beverage market.

The screening process can begin by assessing co-packers against a set of critical “Must Have” and important “Want to Have” selection criteria. Often, this process begins with assessing the site characteristics, determining if the co-packer site provides adequate utilities and floor space for the proposed operations.

Unlike a typical site location assessment, the critical and important criteria will also include factors related to the reputation, experience and company values of the partner. Components that can be integrated include assessing a co-packer’s commitment to company values like sustainability, as well as financial strength.

The pool of potential co-packers will narrow to a qualified short list for further evaluation. A factor that is often overlooked at this stage of the process is aligning the company’s commercial schedule with an operational timeline that includes procurement of machinery, build-out of a facility, commissioning of the line and regulatory approvals required for operations. Critical within the alignment is identifying the regulatory approvals needed for sale domestically and for export. Establishing whether the co-packer holds certifications such as HACCP, GMP, ISO and Halal — and whether those certifications can be incorporated into the product — can dramatically reduce certification applications.

Captive Manufacturing

A company forecasting demand in excess of 175 million liters per year will likely conduct a captive manufacturing site location assessment. Under an end-to-end strategy a different set of critical criteria must be addressed to reduce the potential risk they may pose to the investment.

Industrial zones in China, Vietnam and Taiwan have adopted policies to attract high-value investments focused on Industry 4.0 sectors. These policies put thresholds on the revenue generation that must be met. A common practice in the zones along China’s eastern seaboard is meeting tax generation requirements. Tractus has encountered tax generation thresholds that vary from $40 to $111 per sq. m. The space required for a multiple-line bottling facility with adequate logistics and storage may not be able to fulfill these requirements and zone management are unlikely to compromise on this issue. Therefore, establishing the sale price and volumes upfront in a site location will allow these factors to be incorporated into the search process and avoid risk of disqualifying a site that otherwise meets all other criteria.

Zones in China and Vietnam also have plot ratio, or building density, requirements. In China, zones mostly require that the facility has a plot ratio of 1, meaning that if the plot is 60,000 sq. m. the facility must have 60,000 sq. m. of definable floor space under roof. Zones, however, can have ratios as high as 2.5 to 1. While these ratios may be negotiable, it is critical that a potential investor develop a conceptual layout of a planned facility so that minimum site requirements can be determined.

Zones may also, according to plot size, place restrictions on available utilities. This is most commonly applied to water and wastewater but can also be applied to natural gas and electricity. Zones in Taiwan and Malaysia can limit water consumption to as little as 330 liters per sq. m. per day, which may be substantially below the necessary inputs for a beverage processing facility. Identifying zones without restrictions on water consumption and wastewater generation and those with high levels of excess capacity for water and wastewater, therefore, becomes a key consideration in a beverage facility site selection analysis.

James Meisenheimer, based in Bangkok, is the sector lead for the Food and Agriculture practice at Tractus Asia (, a leading Pan-Asian strategy advisory and consulting firm.

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