Fevertree is no longer simply a bet on UK gin fad


A month ago, satirical website The Daily Mash published an article entitled “They’ll forget about you, too — prosecco warns gin”, in which the spirit most commonly drunk with tonic was advised to “enjoy its moment as Britain’s booze du jour while it can, because it will not last”. 

This now looks uncannily prescient. On Wednesday, Fevertree, maker of the nation’s bestselling tonic water, admitted its UK sales growth would fall from 93 per cent in 2017 and 53 per cent in 2018 to 2 per cent this year. At the same time, its UK market share, which hit 42 per cent in 2018, will decline to 38 per cent.

With UK sales still the biggest ingredient in the company’s results, that will cut group revenue to £266m-£268m which, when mixed with an unchanged 31 per cent operating margin, results in a 3-4 per cent profit downgrade. 

So, with Fevertree shares down by a quarter in the past year, is it time to drink up, and sell up? 

Fevertree insists its UK sales growth will improve in 2020, as gin consumption is set to overtake that of vodka, and the business will not be up against such tough comparatives or bad weather. But its forecast is 5 per cent growth at best — and there are reasons to believe that sales of premium gin may soon look like the hats of the hipsters who drink it: somewhat peaky.

Liberum analysts note the competition in pubs and bars, which can be offered favourable terms by rivals Coca-Cola and Britvic to make their tonic waters the “house pour”, ie the default mixer if you simply ask for a “G&T”. They also concede that there are now “a dozen premium tonic me-too brands”. And they say “flavoured gins” bring “increased concern” — presumably because they do not require a premium tonic. 

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However, just as prosecco appears a UK fad that both bemuses and amuses those in the global wine trade, so gin is looking increasingly parochial and irrelevant to Fevertree. 

Its US sales — driven more by ginger ale than tonic — are set to rise 34 per cent this year, beating analysts’ most optimistic expectations, and approaching 20 per cent of the group total.

Both shop sales — through chains such as Walmart, Target and Kroger — and hospitality industry sales via distribution deals have been strong. Even those Liberum analysts point out that Fevertree’s sales strategy in the US is “building a brand for the long term . . . not some sort of faddish quadrupling”. Its European sales are also beating estimates, up 19 per cent and already a quarter of the group total. Its sales in the rest of the world contribute a further 7 per cent to the total and will be up a third this year.

Fevertree is therefore taking on a different flavour: at this rate, the UK will account for less than 50 per cent of sales in 2020 and only 44 per cent in 2021. If it can maintain its margin as it expands overseas, it shares will retain their appeal. Especially those who don’t like too much gin in the recipe. 

Kingfisher: job not done 

Everyone has a DIY job that is not so much unfinished as unstarted. Even Kingfisher, the DIY retailer. Its main businesses — B&Q in the UK, Castorama and Brico Dépôt in France — have been in need of transformation for some time now. But there seems to be little sign of any in these ‘before’ and ‘after’ snapshots:

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January 25, 2016:

“[Our] plan will leverage the scale of the business by becoming a single, unified company where customer needs always come first.”

November 20, 2019:

“We are suffering from organisational complexity . . . [this] has distracted the business from focusing on customers.”

Admittedly, the plan put in place in 2016 by former chief executive Veronique Laury was meant to run for five years. Still, the verdict of new boss Thierry Garnier after nearly four, in Wednesday’s trading update, made it seem like there had been too much drinking of tasses de thé, and not enough rolling up the sleeves.

That is arguably not the complete picture, as Ms Laury did succeed in unifying duplicated product lines and buying teams. However, Mr Garnier clearly thinks some of the work was counterproductive: “We are trying to do too much at once . . . this has brought disruption to sales”. Indeed, unifying Kingfisher’s local buying teams — it once had nine — may have gone too far: “We have not found the right balance between getting the benefits of group scale and staying close to local markets,” Mr Garnier said.

As a result, Kingfisher’s only growing business is now its UK trade supplier Screwfix. Unfortunately, though, it cannot provide a blueprint for fixing the others. As an early adopter of digital sales, Screwfix has not needed a plan for transformation, or a strategy for catching up with the competition. And, as it generates only 16 per cent of group sales, it is not in a position to subsidise the others.

That gives Mr Garnier until full-year results in March to take a decision familiar to all hapless DIYers: keep trying to fix it, or just break it up. 

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matthew.vincent@ft.com



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