Thursday 21 November 2019 7:15 am

DEBATE: Has Fever-Tree lost its fizz as growth in the UK slows down?

Joe Healey is investment research analyst at The Share Centre.
and Siân Novaković
Siân Novaković is strategy director at retail and branding consultancy Fitch.

Has the fizz gone out of tonic water maker Fever-Tree as growth in its core UK market slows down?

Joe Healey, investment research analyst at The Share Centre, says YES.

Fever-Tree has had a good run, but investors are likely to be tetchy going forward. The drinks phenomenon has struggled in its main UK market this year due to a wider slowdown in consumer spending. 

The company is now expecting to deliver just two per cent growth in the UK. Despite expectations that growth was always going to slow at some point, this figure is likely to raise a few eyebrows considering the extent of the slowdown in comparison to strong growth in previous years.

Share price optimism following the Q3 trading update has been largely driven from its growth in US markets. 

However, the company’s US customer base is much smaller in comparison to the UK market. Therefore, a smaller drop in the UK market requires much larger growth in the US to offset. This is likely to weigh on results should weak UK consumer spending persist. 

Of course, international growth is a huge opportunity for the company, but some would argue that this is already factored into the price, with shares trading above a 50 per cent premium to comparable peers.

Siân Novaković is strategy director at retail and branding consultancy Fitch.

Fever-Tree entered the drinks market with a startup mentality; its smart approach to the premium drinks category and an ability to source and curate interesting ingredients has led the brand to major international success. 

High-impact performance was assured, but so was a dip in sales after such a consistent period of explosive growth. If anything, this recent slow down says more about the impact of the brand’s success, not its future long-term potential. 

Looking ahead, Fever-Tree simply needs to keep innovating to retain its leading position — and the brand should first look at how it can tap into the wider wealth of trends currently storming the food and beverage category. A focus on developing healthy products is certainly an avenue worth exploring.

Whether it’s launching specialist mixers which meet trending dietary preferences, or taking advantage of the booming non-alcohol trend to create products which can be enjoyed in isolation, Fever-Tree now needs to strategically review how it plans to meet the needs of the customer of the future to stay in the game.

Main image credit: Getty

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