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This month, Richard Corbett considers Fever-Tree's dominance of the premium mixer segment. Is there still room for any competition? And, if so, who could take a bite out of the group's share?

Does Fever-Tree have the premium mixer segment sewn up?

Does Fever-Tree have the premium mixer segment sewn up?

The interest in the mixers segment of the soft drinks category has soared since the realisation that UK company Fever-Tree is on to a very good thing. It was almost exactly three years ago that I wrote about Fever-Tree's IPO. Since then, the company has more than delivered on my very high expectations, with its share price ballooning from GBP1.34 in late-2014 to well north of GBP20. The group's namesake brand continues to go from strength to strength with sales in the first six months of this year up by 77%, growing in every region it competes in.

Is this rate of growth sustainable? A look at the global numbers for spirits provides cause for optimism. In the last five years alone, according to GlobalData, the global spirits market has expanded by a quarter. The fortunes of the mixers market is tied to the demand for spirits and this is borne out by the 15% jump in tonics and mixer sales during the same period.

There is, then, plenty of momentum in the market for not only spirits, but also - more importantly from Fever-Tree's perspective - for premium spirits. After all, it was the emergence of the premium spirits trend that created a gap in the market for a deluxe mixer brand. As Fever-Tree points out in its marketing messages, three-quarters of your G&T is the tonic: If you spend a supplement on the gin, then surely you should invest in the mixer as well?

Logic dictates, then, that a trend towards premium spirit brands would also increase - even create - the demand for a premium mixer brand. Fever-Tree has filled that role.

In the UK, the interest in premium spirits has manifested as an explosion in craft-styled or 'artisan' gins. The country is undergoing a gin revolution and this has helped to underpin the extraordinary rise of Fever-Tree in its home market. The number of new gins continues to rise – there's even a brand called 'Not Another Effing Gin'. This interest in gin is moving to other shores and this will boost Fever-Tree further.

Future demand for tonics and mixers looks relatively assured, but expect Fever-Tree to face an uplift in competition. Before Fever-Tree appeared, the mixers market was mainly dominated by just a few very traditional and longstanding names. Seagrams, Kinley, Evervess, Canada Dry and, most notably, Schweppes.

Schweppes Tonic first featured as long ago as 1870 when the drink was formulated utilising quinine to ward of malaria in colonial India. As quinine gives a bitter taste, British colonists who settled in India mixed it with lime and gin. Schweppes has been a prominent feature of the tonic market ever since, but the brand - and others - are inevitably responding to the threat from Fever-Tree.

Schweppes has counter-attacked with some genuinely pioneering and interesting products packaged in eye-catching designs. Earlier this month, brand owner The Coca-Cola Co launched six premium mixers as part of the new 1783 range extension. But, the Schweppes brand will struggle to upgrade from the consumer perception that this is a mainstream brand while Fever-Tree is a premium product. Schweppes is the Ford and Fever-Tree the Mercedes. Subsequently, it will be tough for Schweppes to win back the share it has conceded, particularly in pubs, bars and restaurants.

Growing markets also encourage new entries, and that brings new competition. The success of Fever-Tree has not gone unnoticed at Red Bull's Austrian headquarters, and it looks like the energy drink giant is preparing to challenge Fever-Tree's dominance. The company has recently unveiled its own premium mixers range, Organics by Red Bull. Initially launched in Austria, we can expect the four-strong range - including a tonic variant - to be rolled out far and wide. Organics has likely been timed to head off Fever-Tree before it gets its tentacles too deeply into the European and North American markets.

Red Bull certainly knows about the mixer markets, having created its reputation as a mixer in its early days. In many markets, most consumer's first exposure to Red Bull was mixing it with vodka in a bar or a club. The 'Vodka Red Bull' barcall remains popular today, as does the Jägerbomb and other Red Bull alcoholic combinations.

Red Bull could undoubtedly provide some competition for Fever-Tree but the antidote is to be one step ahead. Fever-Tree looks to be on the case. The company has demonstrated its creative credentials with the appointment in September of the former Diageo innovation head, Alexandra O'Rourke.

The outlook continues to look bright for Fever-Tree with its involvement in a growing mixers market. New competition and old will present itself, but it will be difficult for these operators to contest Fever-Tree's status, now that it has established itself as the leading premium mixer brand.

Perhaps the next big decision the company must face will be whether to make the packaging move to PET. Volume growth would accelerate dramatically, but would this dilute the equity of the brand and in the longer term erode its margins?

The move away from alcohol and the soft drinks opportunity – Consumer Trends


Sectors: Soft drinks, Water

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