Lower alcohol consumption among younger consumers could be having a knock-on effect on mixers such as Fever-Tree, which has seen a slower performance in the UK this year, a leading analyst has suggested.
Russ Mould of AJ Bell was commenting following a trading update by Fevertree Drinks, the brand's parent company, which said that its performance was 'behind our expectations in the second half', due to tough summer comparatives and a slowdown in consumer spending.
Fever-Tree expects to deliver around 2% growth in the UK, its core market.
However, as Mould stated, “another concern is the rise of the teetotal movement, particularly among younger people. That begs the question of whether fast growth products like gin may have seen their best days and sales growth starts to moderate in the next few years. That would naturally have a negative knock-on effect for Fevertree Drinks and its range of mixers."
Recent studies have shown that millennials and Generation Z consumers are drinking less than their parents did – according to a 2018 study by Berenberg Research, those in their teens and early 20s are drinking around 20% less than Millennials, while Millennials similarly are drinking less than the Generation X cohort and Baby Boomers.
US Expansion
Much is being made of the group's move into the US, and in its trading update, the group said that it saw its sales 'accelerate' in this key market, thanks to 'significant distribution expansion'.
“The investment case for Fevertree was originally centred upon the company enjoying rapid success in the UK. Now it is all about replicating this success in the US and so to its credit the company is living up to the hype," said Mould.
“So far it is doing a great job stateside and so today’s warning that group revenue will come in slightly below analyst expectations is hardly a sign that everything has gone wrong with the business.”
Tough Competition
In addition to challenging comparatives, Mould added, Fever-Tree is also facing tougher competition, both at home and abroad.
"After all, if Fevertree has done so well then other tonic providers will naturally want to have a slice of the pie by copying its posh product approach. Imitation is the sincerest form of flattery," he said.
“Schweppes has been pushing its 1783 tonic product more this year, Fentimans has also been taking shelf space and Lamb & Watt is another example of a rival trying to grab the tonic drinker’s attention."
Analyst Nico von Stackelberg of Liberum also suggested that Fever-Tree was finding the going more challenging due to increased competition in the marketplace.
"We noted over a dozen premium tonic me-too brands in our initiation," he said. "Certainly, we’ve found a few more such as Sekforde and Luscombe. We still regard this competition as a niche and are confident that Fever-Tree will retain its leadership position in the UK as it has first-mover advantage and social-proof. But in aggregate, yes, they craft players are annoying and it contributes, mildly, to our lower revenue per outlet revision."
Gin Sales
Gin consumption, von Stackelberg added, shows little sign of slowing down, particularly in the UK, which is likely to provide a fillip to the brand.
"In light of increased penetration of flavoured gins, there is increased concern that gin consumption could suffer as flavoured vodka in the US did," he said. "While flavoured gin has a role to play to attract new consumers in the market, we would welcome greater discipline on flavours from craft manufacturers to keep the gin category vibrant.
"With that being said, we continue to believe that gin benefits from both favourable generational trend as well as long-standing traditions in the UK which are unlikely to disappear. We continue to be vigilant of potential signs of slow down in gin in the UK. We believe Fever-Tree is much more than just tonic in the UK but continue to believe gin in the UK is a vibrant category."
© 2019 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: The European Supermarket Magazine.
