Britvic hits make-or-break time for US Fruit Shoot - analysis

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Britvic's Fruit Shoot adventures in the US have long interested analysts. 

Britvic will roll out its US Fruit Shoot multi-packs next year

Britvic will roll out its US Fruit Shoot multi-packs next year

The brand is the top-selling children's drink in the UK so it was no surprise Britvic took it to the lucrative US market in 2011. What interested analysts, however, was the decision to use a franchise model in which juice concentrate was sold to local bottlers.

In 2012, Investec described the move as potentially "transformational for the group". Wayne Brown, an analyst at Canaccord Genuity, also championed the model and put weight behind moves to roll it out in Spain. Fruit Shoot has "universal appeal", Brown said.

Fast forward to today, however, and although Fruit Shoot franchises cover the whole US, Britvic continues to lose money on the brand. Announcing FY results this week, management admitted that Britvic's international business unit, of which the US is a core part, lost about US$10m in the past financial year. They didn't break those numbers down, but Britvic's finance director John Gibney said he doesn't expect Fruit Shoot to turn profitable in US "over the next year to 18 months".

So what is Fruit Shoot's US problem?

So far, Britvic has confined its US presence to the US$200m single-serve category. Next year, however, the company will start selling Fruit Shoot in multi-packs, moving for the first time into a category worth $2bn, or ten-times as much. As Gibney said, the change-up to multi-pack is "crucial" for the long-term success of Fruit Shoot in the US. 

Analysts yesterday largely agreed, but warned that a proper verdict will have to wait.

"Time will tell how successful this roll-out will be," Barclays said. "We estimate the business was double-digit loss making in full-year 2015 while our estimates do not expect a move towards break-even until the end of fiscal full-year 2019."

Part of the problem is that Britvic has yet to announce which retailers will stock Fruit Shoot multi-packs when they roll out in the first half of next year. Management was silent on the issue yesterday, but Societe General's analysts believed the team was "hinting strongly" that Wal-Mart is onside, a partnership that would go a long way to giving the multi-pack a sporting chance in a fiercely competitive market.

Meanwhile, Britvic will also add Pizza Hut's 6,000 US outlets to its list of Fruit Shoot stockists, giving the product an important foothold in the restaurant channel.

Despite these wins, Britvic's management on Wednesday refused to be carried away, telling analysts they are in no rush to get Fruit Shoot in the black.

"The question is, how can we build a sustainable brand, not how quickly we can make it profitable," Gibney said. "So if we see an opportunity to build a bigger brand for a sustainable future, that's the choice we will make."

Next year's multi-pack rollout, however, is make-or-break time for Fruit Shoot in the US. If it succeeds, then Fruit Shoot has the potential to be a cash-cow for Britvic as the franchise model primes margins with little infrastructure risk. 

If it fails, then the whole international Fruit Shoot adventure will be called into question - universal appeal not withstanding.

Sectors: Company results, Soft drinks, Water

Companies: Britvic

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