“We are in uncharted water… the scale of inflation is so big” – Britvic UK managing director Paul Graham

As the UK production and distribution partner for CSD giant PepsiCo, Britvic has pretty good oversight of the threats and opportunities presenting themselves in the country’s soft drinks market. The Purdey’s brand owner has so far managed to navigate the choppy waters of Covid-19, supply chain disruption and runaway inflation with relative success, posting solid year-to-date revenue growth of 15.7% in its latest trading update, delivered this week. CEO Simon Litherland told shareholders the group is “encouraged by trading performance year to date”, adding it expects to meet the market’s expectations for full-year revenue and profits. Britvic’s fortunes contrast those of rival UK-headquartered mixers brand Fever-Tree, which last week announced a profit warning that sent its share price into freefall. Analysts argue direct comparisons between the two companies would be misleading, due to Fever-Tree’s limited presence in the soft drinks category, but it’s clear which company investors think represents a safer bet at present, with shares in Britvic closing up 6.5% on Thursday (21 July). Earlier this month (prior to Britvic’s most recent trading update), Just Drinks caught up with UK managing director Paul Graham to find out more about the company’s positioning in health and wellness, its ability to steer through the current supply chain chaos and the decision to call time on an 86-year partnership with the Wimbledon tennis tournament. Just Drinks: How well positioned are you to take advantage of current health and wellbeing trends in soft drinks? Britvic UK managing director Paul Graham: Health means lots of things to lots of different people. In soft drinks, the number one priority is sugar content, and we were placed on that ahead of the sugar tax levy. From a Britvic portfolio perspective, we were already 70% (in volume terms) below the threshold. We took out our Robinsons Squash and Fruit Shoot full sugar ranges in 2013 and 2015, and we have been progressively moving the business to becoming a no-sugar business, which has really helped us to be on-trend. We also haven’t put any marketing investment in the full sugar variant of Pepsi since 2006. We’ve been focused on PepsiMax (No sugar) since then. The other thing in health and wellness is people are looking for added benefits in consumption. We have Purdey’s in our range which has added energy, and we bought the Plenish brand just over a year ago, which covers plant-based dairy alternatives. That has been going really well with potential for further scope in the future. Britvic's Purdey’s brand contains natural herbal extracts and vitamins. JD: What’s driving this trend, in your view? PG: Post-Covid, I do think people are more aware of their health. I think people probably went either two ways during the pandemic – either they became a lot healthier, or they sat at home and ate too many takeaways, and are now trying to get healthier. So I do think that there is more interest in health and wellness and calorie intake, ingredients and so forth, and whether there are easy ways for them to supplement their lifestyle. I do think there is a broader health and wellness trend but Covid has helped to move that on a bit. JD: How has Plenish been performing for you since the acquisition last May? PG: We’ve started to see some real increases in distribution and rate of sale in grocery listings. We’ve done a big piece of brand work, which has now gone live and started in the last quarter. We’ve really freshened up and brought the brand to life and we’re really pleased with the way it is standing out in what is an increasingly competitive category. It’s important for us with Plenish that we stay true to the ingredients – there’s no rapeseed, no gums, no emulsifiers that you see in some of the leading brands. We think that, the more people catch onto that, we have a clear differentiation in terms of the quality of product. The other element that has pleasantly surprised us is the shots side of the business. We’ve got juice shots with tumeric, ginger, etc. and we’re seeing that line start to perform well in single-serve drinks chillers where you’d normally find the usual suspects in terms of soft drinks. We’re in Caffe Nero, and in places like Asda in the front of store. JD: Any further plans for M&A activity or NPD to tap into health and wellness? PG: Our real strength from the Britvic perspective is our portfolio. We’re got a great range of brands and the bases covered on most things. Actually, managing and prioritising focus across the business is a challenge. So we’ve got plenty of good ammunition to get out there with. The group acquired the Plenish brand in May 2021. JD: You recently shook up your UK leadership team structure. What can you tell us about the decision-making process here? PG: Previously our channels were divided up into at-home and out-of-home. At-home was effectively grocery channels, whilst out-of-home was convenience, foodservice and hospitality. We decided to re-cut that to be retail and hospitality. We felt a cleaner definition between buying in shops and having an experience in an outlet was needed. That made sense to us, particularly as a lot of the grocers are now stepping into the convenience space e.g. Morrisons with McColl’s, Asda with Euro Garages, and the continued strength of Tesco Express, Sainsbury’s Local etc. It means I’ve got a tighter team to cover the whole of the retail market and then, from hospitality, it means we can really focus on brand experience and innovation around format to meet the needs of that channel. JD: We’ve seen Fever-Tree slash its profit guidance for the year this month amid soaring operational costs. How are things holding up at your end? PG: It’s probably the biggest challenge we are facing right now. Every business is having to deal with and lean into the challenge around increasing costs. It’s felt like we’ve had two years of Covid to manage operationally and thinking once we get out of this it’ll be blue water and off we go. Of course, as the risk of Covid has subsided, it has been replaced by the cost of living and inflation. There’s two aspects to it, of course. One is around our cost inflation, and the second is the impact inflation is having on our shoppers and consumers. From our own standpoint, we are a pretty good-sized business and have good visibility of the costs in-market and use our procurement function to mitigate costs as far as we can but, given the increase in costs we are seeing for a number of materials right now, it’s not possible completely. We have passed through pricing where we have needed to, whilst being conscious of the cost of living, and being competitive in-market. Soft drinks is a competitive market so we need to be mindful. JD: We’re living in a period of inflation at its highest level for around 30 years. What kinds of price increases have you had and how are Britvic’s consumers tolerating your price increases? Are there any particular brands for which demand seems to be more/less elastic? PG: In terms of the levels of increase, we are seeing pushing high single digits into double-digit inflation levels in terms of our own raw materials. Glass has clearly gone up in price because of energy costs. Energy itself in the short term. Aluminium for cans has been another key one. From a Britvic perspective, some of the juice and commodity materials are also being impacted by shipping, Covid outbreaks in countries of origin and of course climate because of crop yields, droughts, floods and the like. It’s quite a long list really. Historically soft drinks have remained resilient in times of economic downturn compared to other categories but we are in uncharted water here… the scale [of inflation] is so big. We’re probably testing the modelling in terms of what we have seen. I still think soft drinks offer great value for money, a great choice of products and great variety for a multitude of occasions, so I am pretty confident the category will stay resilient. From an elasticity perspective, it’s probably too early to say. Because we are coming out of a very inconsistent baseline with coming out of lockdown and hospitality recovering a year or so ago, just looking at year-on-year comparisons doesn’t paint a true picture. What I will say is that we haven’t seen anything outside of what we would expect at this point in time in terms of consumer behaviour. JD: Are there any bottlenecks in the supply chain that are causing you particularly large headaches at the moment? PG: Probably the hardest thing has been the uncertainty. If you know what’s going to happen, you can deal with it and find mitigation. When you don’t know what is going to happen, that’s when it gets particularly tricky. You know there’s going to be a problem somewhere but you don’t really know what it is until it happens, which is why the flavour of what we have been working on has been more around supply resilience than supply efficiency. Britvic has the exclusive rights to manufacture and distribute PepsiCo in the UK. JD: You’re the exclusive PepsiCo bottler and distributor in the UK. Earlier this month, the group rolled back on its pledge for all plastic bottles in the UK to be made entirely from recycled PET by the end of 2022. Can you tell us a bit more about that? PG: The simple equation is that there is a lot more demand for recycled material than there is supply. That is more acute in the GB market than in some other markets because we don’t yet have a DRS system, and so we haven’t got a way of capturing that quality of feed stock. There’s also the question of getting the right level of quality of material at consistent levels. The combination of those things means it is really hard to guarantee the availability of that material. The commitment is there from a sustainability perspective, but the challenge of operating and supplying that with certainty isn’t. What we don’t want to do is to make a claim, move forward and then not be able to fulfil it, or not be able to service product. What we are all trying to deal with in terms of supplying our customers – putting more volatility and insecurity into supply chain at this point in time is something we don’t think we should do. JD: Earlier this month, we saw Britvic announce it was to end its partnership with Wimbledon for its Robinsons brand. We’ve seen it reported that you were keen to advertise other brands such as Gatorade, PepsiMax, Rockstar, which Wimbledon weren’t keen on. Is that true? PG: No. Categorically no. The decision was a really tough one as Robinsons has been associated with Wimbledon for 86 years. Our contract actually expired in 2020 but was rolled over because of Covid. We were at a renewal point in terms of the conversation. AELTC (The All England Lawn Tennis & Croquet Club) have got aspirations around Wimbledon being a truly global event and that goes for their partners and how Robinsons would fit in. At the same time, we were having conversations around Robinsons and asking ourselves “how relevant is Wimbledon?” to the average drinker. We want the brand to be associated with fun, healthier hydration and families, and that led us to ask if there were other things we could do with it to engage in those areas. Ultimately, we stepped back and felt that Wimbledon was a big part of the brand, and consequently took up a big percentage of the time, effort and budget, and that this was an opportunity for us to step out and set the chapter for the next 86 years for the brand. In terms of the conversation with AELTC and Wimbledon, we put our ideas to them and they put their proposition to us and it was clear that it probably was not the right fit. The conversation was incredibly constructive and AELTC have been so supportive over the years. There was no falling out, no histrionics and it wasn’t because we were trying to sell Pepsi at Wimbledon, I can categorically assure you that. In June, Britvic announced it was to cut ties between its Robinsons brand and Wimbledon. JD: So what are you focusing on instead with the Robinsons brand? PG: The two things we’ve done with Robinsons since then are The Big Fruit Hunt – which is a digital app to engage with kids and teach them about staying hydrated, and the second is the partnership with The Hundred cricket via our Robinsons RTDs. We’re excited about that because it is inclusive around the men and women's game, and it’s looking to attract a broad family audience. Being able to activate in a longer event over the summer [that] gives us the opportunity to engage in fun, family activity was really attractive to us. JD: What are Britvic’s key focuses and priorities in the next 12-18 months? PG: Growth, growth and a bit more growth. Winning in the market, expanding our footprint across retail and hospitality, driving and developing our big core brands, and keeping them relevant to people. When times are tough and the cost of living is high, people revert back to what they know and they love. We also want to think about building on our brands, whether that is through premiumisation with London Essences, wellness with Plenish or healthier hydration with Robinsons Ready To Drink. We think we have some innovations that are highly relevant and on-trend.