Fever-Tree sees tonics tumble in pub lockdowns but cocktails-at-home market booms

Fever-Tree sees tonics tumble in pub lockdowns but cocktails-at-home market booms

Sales of Fever-Tree’s tonics plunged in the Covid bars and restaurants lockdown but the craze for cocktail hour at home offset some of the slide.

The company’s sales outperformed management’s hopes in its newer markets such as the US, where Fever-Tree’s pink grapefruit soda proved a hit for mixing with tequila to make “The Paloma”. A summertime love of simple gin and tonic lifted sales in the new markets of Canada and Australia.

Management shifted its marketing spend to push its at-home sales including its first UK television ad campaign, which drove up awareness here, boosting sales of a new larger-pack format in supermarkets and other shops.

Despite those efforts, however, sales in the UK were down a fifth in the first half of the year compared with a year earlier, at £48.3 million, and by 29% in Europe, at £20.5 million.
A 39% jump in its newer US market offset some of the decline, with sales now outstripping Europe, at £27.4 million.

Underlying profit in the six months to 30 June came in at £23.8 million, down from £36.7 million a year earlier.

Fever-Tree has built up a big army of shareholder fans, partly because of the infrastructure-light business model which sees it outsource its manufacturing and distribution and focus on marketing and product development.

That has led to historically high profit margins. Those fell during the period from 51.9% to 46.8% as the company increased its investment levels to shift to selling in stores rather than bars and launched lower pricing in the US.

However, net cash continued to rise, hitting £136.9 million and it paid a 4% increase in dividends to 5.41p a share, which the company said was “reflecting the financial strength, confidence in the business, as well as our strong cash generation.”

Chief executive Tim Warrilow said he had not furloughed any staff during the pandemic, instead moving them and hiring 20 more to reflect the different growth areas of the business.

“People’s interest and excitement about mixing drinks at home has really taken hold over the lockdown period, attracting more households to the Fever-Tree brand than ever before… We have increased our penetration in the UK, consolidated our number one position, and driven value share gains in the US, Europe, and as far afield as Canada and Australia.”

He said Fever-Tree was now capitalising on the reopening of pubs and bars, saying the start of the second half of the year had been “encouraging”.

“While we certainly aren’t immune to the ongoing challenges of Covid-19, our performance and our investments so far this year, coupled with the growing interest in long mixed drinks, gives me confidence that we will exit the crisis in an even stronger position than we entered it.”