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A-Brands

Increased Costs Could Flatten The Fizz At Premium Mixers Brand Fever-Tree, Says Analyst

By Steve Wynne-Jones
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Increased Costs Could Flatten The Fizz At Premium Mixers Brand Fever-Tree, Says Analyst

Premium mixers brand Fever-Tree has enjoyed impressive growth in recent years, but increased costs could make the road ahead more challenging, a leading analyst has said.

Russ Mould of AJ Bell was commenting following the publication of a half-year trading update by the group, in which it reported 39% growth on a constant currency basis, however it wanted that 'challenges surrounding global logistics cost pressures' have impacted its margins.

It also said that that while it anticipated some margin improvement next year, 'logistic cost headwinds will continue, alongside input cost increases on raw materials and product costs'.

Cost Increases Start To Bite

Commenting on the trading update, Mould said, “Any trading momentum fizz at premium mixers firm Fever-Tree has gone flat thanks to the increased costs the company is facing.

“However, management can’t be blamed for the hit to margins from increased logistics costs any more than they could be taken to task for a change in the weather. The increasing costs of shipping goods globally is something many businesses are facing at the moment and it is sobering to see Fever-Tree suggest this could be a problem for the medium term at least."

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Looking Further Afield

Growth in the business' home market stood at 4% for the half-year period, an indication that its rapid rise is starting to slow, however the US (+42% growth) and Europe (+81%) indicate plenty of additional growth markets to exploit.

“The US is a huge market and the company’s progression from its traditional focus on tonic water, lemonades and soda water for the white spirits mixer market into ginger ales, ginger beer and cola for the dark spirits market in recent times should help in the States, given American’s preference for whisky and rum.

“The company is also seeing some benefit from reopening as on-trade sales return and encouragingly it is still enjoying higher off-trade sales than it saw pre-COVID."

On-Trade Boost For Fever-Tree

In its statement, Fever-Tree said that since May, on-trade sales have been outperforming sales from the comparable period in 2019, boosted by 'clear signs of pent-up demand' across the UK.

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Off-trade sales were up 17% in the first half of the year, compared to the corresponding period last year, the group added.

As a result of the strong start to the year, Fever-Tree said that it is increasing its revenue guidance to between £295 million (€341.2 million) and £304 million (€351.6 million) for the full year.

“Fever-Tree benefits from an asset-light, outsourced model which means it has greater flexibility to respond to changes in demand," Mould added.

“It also means it has less money tied up in its operations so a higher percentage of sales convert directly to cash.”

© 2021 European Supermarket Magazine. Article by Stephen Wynne-Jones. For more A-Brands news, click here. Click subscribe to sign up to ESM: European Supermarket Magazine.

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