Disclaimer: This interview is for informational purposes only and should not be relied upon as a basis for investment decisions. In Practise is an independent publisher and all opinions expressed by guests are solely their own opinions and do not reflect the opinion of In Practise.

{audio:0:00:05} Can you provide some context to when you first joined Fentimans?

{audio:0:00:09} I joined Fentimans in October 2017 after talking with them for a year. They knew I would be moving to California and had sites on me because I had worked for Coca-Cola for 10 years, Gerber Food Soft Drinks running their water plant and also doing own label drinks.

{audio:0:00:58} What attracted you to Fentimans?

{audio:0:01:00} They have a lovely, unique botanical brand which is all about natural. I liked the way they made their drinks naturally infusing flavors into it over seven days. You can tell the difference in the taste of the drink.

{audio:0:01:29} Fever-Tree has the same natural storytelling narrative.

{audio:0:01:37} They are all processed differently. Fever-Tree add natural flavors whereas Fentimans is the only one who do a botanical brew, infused over seven days and have less sugar as a result.

{audio:0:02:04} How does the process differ between Fever-Tree and Fentimans?

{audio:0:02:09} It is gently heated with the herbs and spices infused in the vat over several days, which other companies don’t do because it is a costly process.

{audio:0:02:36} How would Fever-Tree’s process compare?

{audio:0:02:42} I haven’t worked for Fever-Tree, but as far as I am aware, they simply add the natural flavors, as opposed to gently heating and infusing as Fentimans do.

{audio:0:03:01} How do you compare the taste, given Fentimans has that botanical process and arguably less sugar?

{audio:0:03:11} Fentimans is 120 years old, whereas Fever-Tree were launched in 2004. For me, Fentimans is less sparkling but has a much deeper, stronger flavor, whereas Fever-Tree is more sparkling when you drink it and has a lighter flavor.

{audio:0:04:56} Fentimans were founded in 1905, why are they still smaller than Fever-Tree?

{audio:0:05:13} Fever-Tree did an IPO several years ago, so they had a huge cash injection, which meant they could move things and make things happen much quicker. Fentimans are a privately owned family company which has not changed hands and transferred to new generations, but they've kept it small and niche to make it different, but obviously they didn't have the opportunity like Fever Tree did to go public.

{audio:0:06:10} It's impacted Fever-Tree because, obviously, they can give money with regards to distribution, and they can also have a much stronger buying power by buying up raw materials, which makes their products slightly cheaper. They also have shareholders to answer to who want results, so they are pushed to be very aggressive in the market. Fever-Tree don't have that pressure so they choose their own route.

{audio:0:07:01} There are several premium mixer products such as Double Dutch, Thomas Henry and Fentimans who are all competing with Fever-Tree, but Fever-Tree claims to be six to seven times as big as all their competitors collectively in the UK. Is that solely due to the IPO and the cash they have or are there any other reasons?

{audio:0:07:40} That helps, but they have a great brand and packaging and have invested in people who got their brand moving for them. They've hit the right spots in the right places at the right time, and have led the category which others followed afterwards.

{audio:0:08:12} How do you compare the packaging between Fentimans and Fever-Tree?

{audio:0:08:18} Fever-Tree's packaging is beautiful and has a metallic sheen which is very eye-catching on the shelf, whereas Fentimans uses more traditional colors and bigger bottles. Fever-Tree have the edge over Fentimans with regards to packaging in general.

{audio:0:09:22} When you joined Fentimans, what was the strategy for scaling the brand in the US?

{audio:0:09:30} They already had a US distributor but nobody on the ground in the same time zone, so they wanted that and someone to look for new opportunities. Distributors have hundreds of brands to look after, so it was important to have someone ensuring Fentimans was on the forefront of the minds of this distributor. They did a great job as there were several opportunities which arose that were great timing when other competitive brands changed distributor. There was an opportunity to jump on the back of that, which sent us soaring into the marketplace.

{audio:0:10:39} Was that a distributor in California or US-wide?

{audio:0:10:43} It was US-wide, when Bundaberg switched their distribution to PepsiCo, who are strong in retail but not in on trade, off trade and food service. I saw that as an opportunity, particularly as Fentimans were with fragmented distributors in the US.

{audio:0:11:23} Who did they originally use for distribution in the US?

{audio:0:11:26} Inform Brokerage, who have since been bought out.

{audio:0:11:33} By one of the bigger players?

{audio:0:11:34} Yes, I can't remember who but that took place two years ago.

{audio:0:11:40} Was Inform across the States?

{audio:0:11:48} No, they were based in Canada and serviced the Canadian and US markets. It was also a good way of getting Fentimans across the border.

{audio:0:12:17} When you first started working at Fentimans, distributing in the US, what was your broad understanding of the position of Fentimans, Fever-Tree, Q Mixers and any other premium mixers you came across?

{audio:0:12:34} I learned it when I got here because it's very different from the UK market. The hospitality and food service side is more fragmented in the US versus the UK. It's a huge market here and every route has its ways. It's a monster you learn to navigate.

{audio:0:13:14} Do you treat high end and quick service restaurants and hotels differently?

{audio:0:13:26} Food service, on trade, off trade and hospitality is one side of the market. Retail is dominated by two players, KeHE and UNFI.

{audio:0:13:53} Is retail little corner shops or Walmart?

{audio:0:13:59} Retail is through Walmart and they do the big guys, whereas smaller, fragmented distributors do the corner shops, which we call off trade. The on trade is done by specialized distributors. In California, the three main ones are Southern Glazer's Wines and Spirits, RNDC and Wine Warehouse, which is exclusive to California. Southern Glazer's have 50 offices in 44 States and Mexico, and RNDC have 40 in 20 States.

{audio:0:15:23} Was Fentimans bottling the product in the US?

{audio:0:15:28} Originally Fentimans was produced in the US to save on shipping costs, but when I joined, the product tasted different as a result of the water. We relocated our manufacturing back to the UK and shipped the product from the UK in 2017, 2018.

{audio:0:16:28} Did the water change the taste for the worse relative to the UK?

{audio:0:16:41} We preferred the taste of UK water, which is why we had to change that.

{audio:0:16:51} How much more expensive was it to ship versus bottling in the US?

{audio:0:17:00} There would have been a bigger expense on that, but I don't know the exact amounts.

{audio:0:17:06} Did that make Fentimans more expensive per bottle in retail?

{audio:0:17:15} Did it become a dollar or two dollars more expensive than Fever-Tree?

{audio:0:17:20} I don't know the exact amounts but in the current market, Fentimans is a dollar more in the US market. Fever-Tree is manufactured in Shepton Mallet, Somerset.

{audio:0:17:55} They're moving most of the bottling to the US at the end of this year.

{audio:0:18:04} That will make a huge difference on their cost. I was explaining the issues we had at the time, which was the same with Coca-Cola made in Mexico versus the US. There is a difference in taste because the water is different, so it has a big impact on it.

{audio:0:18:30} How much could Fever-Tree save manufacturing in the US versus Somerset?

{audio:0:18:43} I'm not in that industry but I know shipping costs have exploded. It would certainly make a difference of up to $2 on a four pack.

{audio:0:19:06} In the UK it costs £1.95 for a 500 milliliter bottle of Fever-Tree at Tesco; once they ship that to the US it must cost a ridiculous price per bottle?

{audio:0:19:29} Food in general is more expensive here in the USA. When we moved here it was quite a shock with regards to inflated prices. I know the UK are currently experiencing the same. In the US, you have to pay VAT at the till, so what you see the product labeled for on a US shelf isn't what you pay when you get to the till.

{audio:0:20:18} Was Fentimans' strategy to be one dollar more expensive than Fever-Tree?

{audio:0:20:27} No, they would like to be more competitive, but their shipping costs and embossed bottles prevented that.

{audio:0:20:52} How did you see Q Mixers' pricing relative to Fentimans and Fever-Tree?

{audio:0:20:58} They were on par with Fever-Tree.

{audio:0:21:07} Can you explain how you segregate on premise distribution in the US? 

{audio:0:21:31} The two main distributors for on trade, who service restaurants, hotels, hospitality and anything that can take alcohol, are Southern Glazer's Wines and Spirits and RNDC. Alongside those are small distributors who operate in each state, such as Flood Distribution, Athens Distributing, Golden Beverage, Imperial Beverage, Georgia's Distribution and Hop and Wine. If you can't get distributed with Southern Glazer's Wines and Spirits, you go through these individual state distributors, which have their benefit because they're not a huge animal and are more touchy feely. 

{audio:0:22:46} If you are with Southern or RNDC, what you do in one state gets fed across the other states, so it's easier to manage and network. They focus on large brands and if they receive stronger marketing fees, they will focus on those main brands, so it's not always a good thing. There are certainly ways around it. Fentimans were with RNDC in specific states and Southern Glazer's in others, and a list of over 50 different distributors purely on that, so there's an awful lot to manage that.

{audio:0:23:52} Were Fentimans and Fever-Tree both distributed by Southern Glazer's?

{audio:0:24:01} I can't remember the exact states that they were in, but Fentimans were there before Fever-Tree, but not in every state. So when Fever-Tree came in, they couldn't ask for something to be de-listed, but they could certainly set their mark. They were in full distribution, whereas Fentimans were with RNDC and smaller distributors.

{audio:0:24:42} Fever-Tree has a nationwide agreement with Southern, but they can't de-list existing mixers that are with Southern?

{audio:0:24:50} If they're already there, not for that sole reason.

{audio:0:24:55} If Southern Glazer's distributes both Fever-Tree and Fentimans, how do they distribute both brands equally to an on-prem account?

{audio:0:25:06} They do but because Fever-Tree are a much bigger player, you need to work with their sales teams to help make their lives easier. You cannot simply have something listed and expect it will be sorted out. If you don't have a team of sales people or brokers in place, you have to hire a merchandising type team to get behind the brand, you cannot rely on the team of that specific distributor to do that role.

{audio:0:25:51} If Fentimans is using RNDC in a state where Southern Glazer's distributes Fever-Tree, what do they have to do to ensure they get front and center with accounts?

{audio:0:26:09} You have to spend time with individual sales people to educate them. Obviously, you can't be everywhere with everyone, but you have to prioritize and work the market that way. You have to be very hands-on instead of crossing your fingers.

{audio:0:26:44} If I'm the sales guy at Southern Glazer's, what is the difference in my margin per bottle or case of Fever-Tree versus Fentimans?

{audio:0:26:58} I don't know the answer to that question.

{audio:0:27:01} Is there any incentive to push a certain brand? Obviously, you could pay me more margin wholesale?

{audio:0:27:11} They get set pay, but you used to be able to incentivize them. For every case they placed, they would get $5, but you can no longer do that. You have to give them a receipt so you can incentivize them by whoever sells the most gets a holiday or Amazon vouchers, but you cannot simply give them money. But you have a problem if you're only incentivizing them in February and June, because they'll do everything in February and drop the rest of the months, so you have to be clever in how you do it.

{audio:0:28:03} When Fever-Tree had a nationwide relationship with Southern Glazer's, how did that impact the mixer market?

{audio:0:28:18} They had a huge team backing them up and a huge budget.

{audio:0:28:34} How would you compare Southern Glazer's and RNDC?

{audio:0:28:38} It comes down to how easy it is to implement orders. Five years ago, Southern Glazer's introduced a new handset for ordering products, and lost a lot of business to Wine Warehouse and RNDC, because customers found it hard to understand the new process.

{audio:0:29:36} Yes, they obviously changed their systems after they had some hiccups. I asked the same question of who do you find it easier to work with to place orders, and in California, many prefer Wine Warehouse.

{audio:0:29:57} Fever-Tree claim they have a unique and powerful relationship with Southern Glazer's; how important is that relative to their competitors, Q or Schweppes?

{audio:0:30:23} It's huge. Schweppes use their own Coca-Cola distribution centers. With Fever-Tree, it's all about relationships and the budget you have behind that. Fever-Tree certainly started to have a huge presence as they got their feet under the table and went IPO, they did a superb job.

{audio:0:31:09} Are Q Mixers distributed by RNDC?

{audio:0:31:15} They must be with RNDC as Southern Glazer's wouldn't take them on. I haven't seen Q much in off premise, they are mainly in retail where they compete well with Fever-Tree and Fentimans.

{audio:0:31:51} Do you mean in the grocery channel?

{audio:0:31:56} What is the biggest risk of Fever-Tree losing market share to Q Mixers or Schweppes in restaurants when they're distributed by Southern Glazer's?

{audio:0:32:11} Coming up with new flavor ideas; the key is your main product, ginger beer and tonic waters, coming up with MPD ideas and keeping up with trends in the market. Floral is the latest trend, particularly elderflower, which is big in the UK, but only happening now in the US where people are beginning to understand it.

{audio:0:33:05} Grapefruit seems to be big for Fever-Tree in the US.

{audio:0:33:08} Yes, it is, and in fact Fentimans had grapefruit before Fever-Tree.

{audio:0:33:35} What was the mix in the US by sales volume of grapefruit, tonics and ginger beer for Fentimans?

{audio:0:33:46} Ginger beer is number one, followed by tonic water. Fentimans had 25 flavor types in the market, whereas Fever-Tree had half that. All Fever-Tree need to do is watch the market, see what trends are happening and if Fentimans introduced a successful product, they would break into the market with that flavor.

{audio:0:34:37} Simply let Fentimans do the MPD work then piggyback off them?

{audio:0:34:42} Yes, you would be surprised.

{audio:0:34:50} It is interesting to compare the tastes and product mix. Tonics are massive in the UK and ginger beer is growing, how do you see that changing in the US?

{audio:0:35:14} The US market has a lot of ready to drink but don't understand the concept of adding cordials to things, they're not very adventurous like that at the moment. I do see they're beginning to see more of a presence in the US of floral products. Belvoir is another big brand who are specifically focusing on elderflower and having an impact. The US loves ginger beer so that's never going to change. Gin and tonic is a huge concept that will also never change. You need to start bolting on added ideas, but also for other soft drinks, flavors and products.

{audio:0:36:32} I've always wondered why Fever-Tree doesn't have an RTD?

{audio:0:36:37} They do, if you like to drink tonic neat. In Safeway Albertsons everything is ready to drink; there are no cordials apart from small droplet additives. It's not huge but it's getting bigger and it's about educating the marketplace on that. If it becomes more like the UK, it will be great.

{audio:0:37:31} That could benefit Fever-Tree who want to displace the soda gun?

{audio:0:37:40} They like the soda gun because it's cost effective and easier, but there is some maintenance for health and safety. It also depends on the contract with Coca-Cola and Pepsi. More bars are moving to small bottles, but the gun is still very much out there in large resorts because of the volume they go through. There is also a big thing here with regards to recycling and packaging, and plastic is definitely a no-no. There's a lot of glass which costs a lot of money to remove, which the gun eliminates.

{audio:0:38:48} Does the gun come from Coca-Cola?

{audio:0:38:57} Coca-Cola and Pepsi-Cola install post mix machines, and you buy bag and box syrups, then add the water and carbon dioxide fizz. It does away with all the packaging, so it's more effective to manage, but it can be messy. It's similar to changing barrels over for beers, where you need to wash down the lines. There is some work involved but many hotel resorts and hospitality places thrive on the gun system.

{audio:0:39:57} Coca-Cola will always be sold in on-prem accounts, but how do you see the use of tonic on the gun changing with Fever-Tree?

Fentimans, Fever Tree, & US Premium Mixer Distribution

Former Sales Director at Fentimans USA

inpractise.com/articles/fentimans-fever-tree-and-us-premium-mixer-distribution

Fentimans, Fever Tree, & US Premium Mixer Distribution(October 24, 2022)

Former Sales Director at Fentimans USA

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