Mixing their gin with a new tonic is the closest many suburban Britons will get to adopting an alternative lifestyle. The revolution has been triggered by Fever-Tree Drinks, which has tipplers reaching for its little bottles rather than familiar yellow cans of Schweppes. With shares 990 per cent higher since 2014, it is the UK’s best performing IPO in a decade.
The challenge for the start-up is to keep the good times rolling, even in distant markets where the phrase “gin o’clock” inspires incomprehension rather than complicity.
Millennials are drinking less than their parents — hungover selfies are not a good look. They will thus pay more for both alcohol and mixers. Fever-Tree, which flavours its tonic with lemons picked from the slopes of Mount Etna, has benefited from the artisanal trend. UK sales rose 118 per cent to £44.7m last year. Earnings before interest, tax, depreciation and amortisation were equal to 35 per cent of group revenues.
Rivals squeeze less juice from sales. Britvic has an equivalent ebitda margin of 16 per cent. Mid-cap UK soft drinks company Nichols is better at 27 per cent while US group Dr Pepper Snapple Group, which owns Schweppes, has a 26 per cent margin. All are surely licking their lips at the margin uplift possible if they push harder into premium, aka expensive, soft drinks.
Fever-Tree is mixing with these bruisers as a lightweight with £100m in revenue and just 46 employees. Britvic, with a similar market worth, has 4,000 staff and revenue of £1.4bn.
Over the next few years, Fever-Tree aims to grow organically rather than through acquisition. The US and Europe are calling, but this will require a change in tack. Sales in the US rose just 36 per cent last year. American drinkers prefer dark spirits to gin. Fever-Tree’s cola and ginger ale are competing in a crowded market.
In the gin-fuelled suburban farces of Alan Ayckbourn, partying always gives way to embarrassment and regret. At its current strained valuation, Fever-Tree will do well to avoid the same denouement.
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