Posh tonic maker Fever-Tree has a knack for finding holes in the market. More than a decade after founders Tim Warrillow and Charles Rolls launched their first product, an Indian tonic water, the firm is flying.
The company’s premium alcohol mixers, including Sicilian lemonade and ginger beer, are sold on and off trade to retailers, hotels and bars across 64 countries. Fever-Tree’s share price has rocketed from 134p to 1,217p since it floated on London’s Alternative Investment Market in 2014.
“It is the same story again at Fever-Tree,” said a Berenberg analyst, commenting on the firm’s latest figures last week. “Having substantially upgraded our forecasts on four separate occasions during 2016, we are once again increasing numbers.”
The question now appears to be whether Fever-Tree’s momentum in the premium drinks sector will falter. To combat any concerns, the team has developed a strategy to sustain long-term growth, including by branching out into new areas like dark spirits.
Gin, which outperformed every other spirit category this year, appears likely to rule the market for the foreseeable future. It’s an easy and quick spirit to make, and Britons love to indulge in it. In the last year alone, we drank 1.12bn gin and tonics, breaking the sector’s £1bn sales mark for the first time ever, according to the Wine and Spirit Trade Association.
However, Fever-Tree is attempting to resist being pigeon-holed. In September, the company made its first foray into the world of whisky and rum mixers with its Madagascan cola. The drink was specially designed to complement dark spirits after the bosses decided this area of the market was under-represented. In the coming weeks, the company will reveal its latest creation, which is being kept safely under wraps in the meantime.
The founders clearly believe Fever-Tree is well placed to succeed with its new ventures. “We were very much a pioneer of the high-quality premium mixer category,” Warrillow tells City A.M. As consumers began to care less about price and more about the quality and origins of spirits, Fever-Tree observed a gap in the market for mixers.
“In stark contrast, the mixers category is dominated by one global brand who have focused on cost-cutting rather than quality.” Fever-Tree is now considered the global leader of the premium mixed drinks category, with 60 per cent of the market.
“We had the first move advantage,” Warrillow says. “The exciting thing is not only have we had remarkable growth, but we think we’re still very early on.”
Analysts appear to agree. Shore Capital’s Phil Carroll believes Fever-Tree is performing materially ahead of current market expectations. “We continue to believe that there remains plenty of white space for the business to grow into with little in the way of effective competition,” he said.
Room for further growth
From its first day on the market, when shares jumped from 134p to 172p within minutes of the market open, Fever-Tree has impressed.
In its latest trading update last week, ahead of full-year results, the tonic maker said like-for-like sales are expected to be around £102.2m, growing 73 per cent for the year ending 31 December. The company increased its profit guidance after already raising forecasts just two months before in November. In Britain, revenue increased 118 per cent on the previous year, while growth in the rest of the world continued.
“We believe the global opportunity remains in its early stages,” Warrillow says. “We’ve managed to catch the imagination of the consumer.”