The Gin and Tonic Market Is Getting Crowded

20 Jan by Vitaliy Dadalyan

The Gin and Tonic Market Is Getting Crowded

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The Gin and Tonic Market Is Getting Crowded(Bloomberg Opinion) — The Fever-Tree gin and tonic has lost its fizz.Fevertree Drinks Plc on Monday warned on profits, sending its shares down as much as 26%. The pioneer in high-end cocktail mixers said sales expanded by just 10% last year and earnings fell 5% compared with 2018. That’s a stark contrast to previous statements from the maker of Sicilian lemon tonic water and spiced orange ginger ale, which usually upgraded expectations.Part of the reason for the warning — slow sales in supermarkets — looks plausible. Britain’s grocers endured a sluggish Christmas and New Year’s trading period. The Boris bounce that was supposed to have Brits lifting the glasses after a decisive December election didn’t materialize. What’s more worrying is that the market for bars and clubs suffered over the holidays, too. That’s a concern given that the broader sector for eating and drinking out had a solid Christmas, according to industry data from the Coffer Peach Business Tracker.There was also unwelcome news out of the U.S., where Chief Executive Officer Tim Warrillow said the company is cutting its prices, from those prevalent at the very top end of the drinks market to merely premium. Consequently, Fevertree is forecasting sales expansion there by a percentage in the low double digits this year, compared with 33% in 2019. Not only is this mysterious — surely Fevertree’s issue was building brand awareness not pricing — but it is a concern for investors, as demand on the other side of the Atlantic was supposed to pick up as the U.K. matured.Fevertree signaled that U.K. growth could accelerate later this year, particularly in comparison with such a difficult 2019. But that looks optimistic. Not only do consumers show no signs of loosening the purse strings, but the danger is that their appetites may have shifted permanently away from the gin and tonics that had them reaching for Fevertree mixers.The U.S. is expected to expand more quickly after 2020, but this is not guaranteed, and it’s some way off anyway. And in the meantime Fevertree is facing competition from all sides from small niche players to big beverage companies such as Coca-Cola Co. For now at least, investors can’t count on this market for the next leg of growth.  With Monday’s lurch downwards, Fevertree shares have lost more than 60% of their value compared with their peak in September 2018. And despite Fevertree’s optimism, it’s hard to see a quick bounce back from here. When high flyers lose their momentum, it can be difficult to recapture: Just look at online retailer Asos Plc, which has struggled to recover from a profit warning in December 2018.The only silver lining is that with Fevertree’s historic premium to rivals slashed, it  could encourage a big beverage or consumer goods company to slot it into their portfolios. But, like investors, they may want to see evidence that the company is stabilizing. After all, its attraction was fast growth, and while 10% revenue expansion is still much better than what’s currently to be had in consumer goods or food retail, it’s not at the levels Fevertree enjoyed over the past few years.It’s clearly not yet the time to say cheers.To contact the author of this story: Andrea Felsted at [email protected] contact the editor responsible for this story: Melissa Pozsgay at [email protected] column does not necessarily reflect the opinion of Bloomberg LP and its owners.Andrea Felsted is a Bloomberg Opinion columnist covering the consumer and retail industries. She previously worked at the Financial Times.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.