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Anonymous

Former SVP at Total Wine

Fever Tree: Off-Premise Channel Update

Former VP at Q-Mixers

Fever Tree US Competition

Fever Tree US vs UK Growth Opportunities

Fever Tree: Gross Margin Outlook

Former VP of Sales at Q-Mixers

Q-Mixers vs Fever Tree: On-Premise Channel

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 how you first got involved with Fever-Tree?

{audio:0:00:09} In mid-2014, I was approached when Fever-Tree was in the advanced stages of doing an IPO, had a provisional date planned for November that year and were building a board. I was approached by a search firm but I knew the chairman of Fever-Tree as we had overlapped on the board of Halfords not long previously. I suspect he may have something to do with me being approached. I met Tim and Charles and Andrew Branchflower, who was and still is the CFO, then formally joined. I got on board in September to help with the last couple of months of prep, then formally joined at the point of the IPO in early November 2014.

{audio:0:01:44} What were your first impressions of them as a partnership in those early days?

{audio:0:01:50} A really strong partnership. Andy was a young guy and very bright. He's done a fabulous job as CFO. Tim and Charles are a class act with complimentary skills. The job titles were different, but effectively they were joint CEOs of the business. They had met before and had both worked in very different roles of the drinks industry. Charles ran a gin business and Tim was a consultant in the drinks space. They met and had chewed over the premiumization which they had spotted. The first idea was to do a premium gin, but they said it doesn't matter how good the gin is, it's what you pour into it which can make or break it. The rest is history, so that's where that came from. They knew their stuff and both had left their jobs and taken time out. They took to public life very well. I've been in and seen some IPOs which haven't worked so well, so it was a good one.

{audio:0:03:21} Why did Charles eventually leave? It seems like he's retired and moved out?

{audio:0:03:28} Charles is older than Tim and there is life outside of working. His aspirations were always to get the thing up and running and give Tim every assistance to do that. From the IPO, it certainly wasn't a sudden thing when it happened. There had been a lot of prep and I know a lot of discussions between them on the timing of that. It was a planned, very smooth process with no fallings out. They govern extremely well, both professionally and personally. Charles thought it was time to go off and do other things with his life.

{audio:0:04:09} It's interesting reading and listening to Tim on the calls. Sometimes I feel a bit of frustration in him dealing with investors or public life. Maybe it's because the public markets are not as long term focused as him, but I sense the frustration in there sometimes on the calls.

{audio:0:04:40} I can't remember exactly what age he was, but into his late thirties or forties, by the time he was chief executive of a public business. Any of us who've worked in public businesses do get frustrated sometimes talking to the other side of the fence and the media and the investors. I don't know if Tim believes maybe there's some frustration that Charles stepped down and maybe Tim's looking for the opportunity as well. Tim's always seen this as a long-term play. There are still plenty of opportunities and challenges, but a long road for the business to go down. Any founder, owner or manager of a business does get frustrated because maybe you guys don't understand it as well as he does.

{audio:0:05:36} Will he stick around for the next 10, 20 years? Is this his lifetime's mission?

{audio:0:05:44} It's difficult for me to say, but I would be very surprised if I picked up the paper and read that Tim was stepping down. In the early days as a non-exec, I didn't think I'd be there long. I was always confident they would do well. I thought it would get snapped up quickly, it would prove it's worth, and one of the big drinks players would come in and buy it. It grew too quickly for that to happen, because you always have to pay a 30% to 50% premium. It got up to a billion market cap in the first year and a half. If you're writing a 30%, 50% premium check on top of that, that's big bucks. Tim and Andy are in for the long term and maybe frustrated that the market's not seeing what they do.

{audio:0:06:39} It doesn't seem too expensive now if you're Diageo?

{audio:0:06:45} Potentially, but that wouldn't shock me, especially if you look at what's happening. Certainly, the time since I've been there, there was some good European markets. The US was always seen as a great opportunity, but they took baby steps and then started the big step towards the time I was leaving. If somebody wanted to get their hands on it, the price isn't cheap. I don't know what the board would say to a 30%, 50% premium at the moment.

{audio:0:07:23} Yes, too cheap. Would that attract them given the challenges in the US with logistics and the executional problems they're having? Would they be swayed if Diageo comes in at 1.5 or two billion?

{audio:0:07:42} I'm not qualified to say; we will talk in this discussion about the challenges ahead. One of them is moving from a very small business. When it went through its first billion and a half market cap, there was still only 40 people in the business, but now it's up to nearly 300. It got up to over three billion market cap but it's down to just over a billion. It's become a big company and, with that, comes all the challenges of a big company. They had one bottling partnership for the first three years, and there's now seven bottling/caning arrangements. It's a big complex business, but still in its DNA, it's a small business, very focused on a single range of products and resisted all temptations being approached to buy soft drink businesses. They're not a soft drink business, they are a mixer business. They are still very close to the original DNA. Back to the acquisition question, nothing has happened that I'm aware of.

{audio:0:08:51} I did think it would happen at the time and then thought it was off the table. Your question is the right one, at a market cap of a billion, is anyone interested? I can't believe there aren't people interested. I'm not sure what it would take to buy it. Certainly, the normal premium on the current valuation would be too cheap.

{audio:0:09:11} They've been very disciplined in sticking to mixers, which is great. Have they had opportunities and approaches from soft drink businesses of adding that to their portfolio and they've almost said no, we're sticking to mixers only with the spirit companies?

{audio:0:09:30} There's been nothing formal and I don't know what's happened in the last four years, but they've definitely had approaches, maybe not direct from those companies, but from people who are looking to encourage others to make acquisitions. There will have been opportunities, but there hasn't been anything in the way of temptation. They are a mixer business, and that's one of the strengths of the business model.

{audio:0:09:57} Can we walk through that business model; how do they source ingredients?

{audio:0:10:04} This is very close to the story and one they played through in the initial marketing. The first break before the business got up and running – a big part of Tim and Charles time in prepping for launching the business – was if we are genuinely going to have the best mixers and are creating a disruptor, there is player out there that is very disruptable in Schweppes, whose business structure didn't allow them to compete with the disruptor. They had different ownerships in different territories with no single decision making. I understand the recipe might be slightly different around different territories in the world. It was very difficult for them to respond and probably a slight arrogance about what Fever-Tree was. 

{audio:0:10:56} Tim and Charles scoured the world looking for the best quinine, lemons and ginger, and a lot of it was literally boots on the ground for those two and a few others. I'm sure it's a lot more sophisticated now. Many people beat the path to Fever-Tree's door saying they have the best Sicilian lemons. It's probably more sophisticated than Tim and Charles being held up at gunpoint in Central Africa searching for quinine, which is a true story. It's moved on since then, but it's still an adherence to the best products with true provenance, which is the key differentiator of the product.

{audio:0:11:50} When we look at the product costs, especially today with inflation, what is the split? On the last earnings calls, Andy mentioned a 30% product cost. Cost of goods is partly product cost and there's some logistics, but of the product costs, 30% is glass, how would you think about the other mix of ingredients?

{audio:0:12:22} I cannot answer that with any certainty. The big challenge has been around supply chain as costs went up over 50% in the US, and 10% for the rest of the business. The real challenge is that cost line has been hugely challenged by supply chain. One of the big reasons the share price got a kicking several months ago, was they flagged the near certainty of cost increases across the board, in raw materials but also in glass and packaging. Everything is under a challenge at the moment. They've made strategic decisions on where they can boot prices up and where in certain growth markets, they don't want to boot prices up because the big objective is to achieve growth, which they don't want to dilute through price increases.

{audio:0:13:36} Fever Tree has increased prices 8% in the UK in H1, and they said there will be another price increase in H2; how would that impact demand given the current position in the UK?

{audio:0:13:56} It is the elasticity of demand and people are passionate about Fever-Tree. It's unlikely they would change their mixer from Fever-Tree to Schweppes, that's too big a step. I have been to a couple of off trade outlets recently and the pricing between Fever-Tree and the others is not huge. There isn't a huge premium on top of some of the other ones. The big difference is still the Schweppes one, and it's unlikely people will trade from one to the other. It depends what kind of price increase it would have to be, but you'd imagine if they put the prices up, everyone else would be under the same pressure as well. It's unlikely to be on their own. I'm not sure they would be hit too badly by a price increase.

{audio:0:15:01} How do you look at the potential pressure from Fentimans and Double Dutch?

{audio:0:15:14} Fever-Tree has first mover advantage in the off trade, which will be difficult for anyone to disrupt. If you visit a supermarket today, you will see a couple of bays of Fever-Tree, a couple of bays of Schweppes/private label, and half a bay spread across the others. No one else has made a big inroads into the physical space Fever-Tree gets. There's not a lot of difference in the pricing. People are always going to pick up, and as you're growing and you're the disruptor or the Robin Hood, you're the hero of the market. Everyone switches to Fever-Tree, then there's inevitably me too products. 

{audio:0:16:07} I have spoken to people and they say, I've moved on from Fever-Tree and I now drink X; it's a personal thing. I still think Fever-Tree's first mover advantage and what they've done with that, gives them a defensive position going forward. Fever-Tree is the big disruptor and the differentiator is taste and ingredients. Others have copied that. Are they as good? If they haven't copied it and are doing something different, what do they stand for, and I'm not sure if there is a difference.

{audio:0:17:04} Let's say in two years you go into Tesco, Sainsbury's or Waitrose and Double Dutch or Fentimans have a big bay and Fever-Tree only half a bay, what could cause that to happen?

{audio:0:17:21} You would need big box, huge upfront listing fees to get that, and you would wonder how they could afford it. If that was to happen, it might be one of the others being taken out, the discussion we just had about acquisition and somebody else got taken out by one of the big players who had significant funds. That would be the way to do it. Even then with a supermarket, with the market share Fever-Tree have, in the early days, it was a push strategy to get it into the supermarkets, and now there's still push there, with marketing support and promotions and tie out with other complimentary brands, but also a huge part of it is pull or demand. 

{audio:0:18:13} That's what people want when they go into a supermarket, whether it's big bottles, packs of smaller bottles or cans, demand drives what supermarkets put on shelves. They could be not totally dislodged, but the balance could change, but it would take big bucks to do it, or a huge change in consumer demand saying we want Double Dutch rather than Fever-Tree. I don't see it at the moment.

{audio:0:18:40} On that co-marketing question, if Diageo purchased Fentimans or Double Dutch, how could they influence the grocer? 

{audio:0:18:54} Dollars is a big part of it, but they also have to demonstrate that consumers will love what they're selling, and that would be a risky thing to do.

{audio:0:19:06} Back in those early days, how did you push Fever-Tree into the off-prem channel in the UK? What co-marketing strategies did you use?

{audio:0:19:26} A lot of time was spent with the buyers of big supermarkets, telling the story of the famous Fever-Tree gin safari. You walk buyers around the on-trade, which remains a big part of the early messaging around word of mouth and look at the kind of people drinking this product. How they use it, what they mix it with, influencing bars, restaurants and hotels, and asking for it by name. That was taken back into the supermarket buying process. You will find there will be demand if you can get the product on the shelves. 

{audio:0:20:11} One of the challenges in the early days was to keep things stocked. It went so well that you go to a supermarket and see empty shelves. There's constant discussion with the supermarket about you will get the numbers if you keep the shelves stocked, which is their responsibility, not the suppliers. I was a non-exec, but the banks could only talk to them about the demand that was out there. So it was using on and off trade together to tell the story. The early days saw challenges of talking to supermarket buyers about pricing, which is ultimately the supermarket's decision. You can recommend but you can't set the price and some supermarkets like to do high low pricing, which is not great for a brand like Fever-Tree. You don't want people waiting, knowing that there's going to be a cheap price at the end of the month. You want a nice, steady, premium price for a premium product. That sometimes cuts across the way supermarkets do things. 

{audio:0:21:13} Does Fever-Tree co-market with Diageo in end placements at grocers?

{audio:0:21:22} With specific gin or vodka brands. That didn't happen much in the early days, but is happening more now.

{audio:0:21:44} You both put up the same dollars and that goes towards the placement at the end?

{audio:0:21:49} I couldn't tell you what the split was, but Fever-Tree were successful with pop-up bars. They are a small-scale operation with Kew Gardens, one at the airport and one at Lord’s. The other brands you bring into that will contribute, then you have the benefit of working together and being seen to be in this process together.

{audio:0:22:15} That could be a risk if Fever-Tree is not for sale, which I hope it's not, and Diageo wants a mixer in their portfolio and decides to go to Fentimans or Double Dutch?

{audio:0:22:34} They could but they would be cutting out the market leader the consumer wants. There's not a pricing difference between Fever-Tree and the other so-called premium mixers, so I'm not sure why Diageo would do it.

{audio:0:22:54} How are Fentimans or Double Dutch distributed to on-prem in the UK?

{audio:0:23:06} I'd imagine the same way Fever-Tree is, through wholesalers who have access to doors. Some of these wholesalers provide added value, they're not just lorries that pick up at the back of Fever-Tree and drop off into a supermarket or on trade. Some offer menu design or suggestion, we're looking at the market closely and these are the on-trend drinks, why don't you stock this? Single brands use a range of wholesalers who provide some of those services.

{audio:0:24:10} How can Fentimans or Double Dutch potentially get an advantage over Fever-Tree?

{audio:0:24:21} I'm not sure they can as it is difficult for them to get growth. This is a market where first mover advantage is so good. If Fever-Tree keep their eye on the ball, and they will, because they're absolutely focused on it, their product development and innovation has been very good. Initially, limited-edition tonics like Clementine and Madagascan cola designed for dark spirits, and soda waters, creating mixers for specific drinks. The lime soda for a Paloma, a tequila-based cocktail, is keeping ahead of that. As long as Fever-Tree do that, it's difficult for somebody to come in and overhaul them. They had some Fentimans and others with slightly different flavors, so there will definitely be a market for that, but when they go head-to-head, it is difficult to see.

{audio:0:25:36} What is the biggest risk to Fever-Tree, specifically in the UK over the next 10 years?

{audio:0:25:42} In the UK, being a public company, they have a sizable chunk of the market. I am not sure the market will grow enormously in the UK. They are market leaders with a big chunk. Maintaining growth will be the biggest issue for them. They have the advantage and are the only premium mixer business with a truly global brand, so have access to other growth opportunities. Fever-Tree have great growth opportunities in the US, Europe and the rest of the world, in a way the others probably don't.

{audio:0:26:25} How did the bottling, packaging and distribution work, historically?

{audio:0:26:41} One of the great things Fever-Tree did in the early days, well before the IPO, they formed a very good relationship with the bottling firm they still use in the UK. That firm invested in Fever-Tree at a price well below, between 5% and 10% stake. The business was valued less than the IPO price, so it was a true partnership. A couple of the directors of that business were directors – if it was that formal a type of word – certainly advisors on the pre-IPO board. It was a real partnership with real mutual interest. 

{audio:0:27:27} The usual discussions, early on, with the drinks companies, say a bottling plant about annual increases in prices, had a different edge to it because these two companies were very much in bed together. That served them very well. Right through the time I was there, very strong relationship and a great thing to have done, very early on.

{audio:0:27:53} How does that relationship work?

{audio:0:27:56} That was the UK bottling, but then they had to move into UK cans which take you to a different consumer. That's a different partnership, then through into Northern Europe and the US with the operations they now have.

{audio:0:28:11} How do these relationships work? Is it a fee per bottle to the partner that you pay?

{audio:0:28:22} Yes generally, which is volume related, and one of the issues they have in the US at the moment, it's all quite early-stage stuff. They discussed in the last presentation, the economies of scale are still to come on that in the US, and they will do. As they move from a single bottling partner and operation to seven in three different continents and Australia to come, then you move some of those advantages of the economies of scale, because you're spreading that bottle production. All the US bottle production went through the plant in Somerset, before the US bottling was set up. I think some of it still is down there.

{audio:0:29:05} Yes, they mentioned they expected to shift 60% to the US by next year, but that's flipped back to 40%, so 60% is being sent from Somerset to the US to serve that market, which is obviously quite expensive.

{audio:0:29:23} That creates challenges. We've all seen the supply chain issues over the last few months, and sometimes the need to stockpile in the territory. In the US, if you're concerned about supply chain delays, you stockpile them, which also ties up working capital. The sooner they get both West and East Coast up and running, and start to drive the economies of scale, that will make a big difference.

{audio:0:29:51} Historically, you literally source the ingredients, bottle it in the UK with your partner, then ship it to the US, and Southern Glazer's would distribute it?

{audio:0:30:08} In the US, the initial arrangement was with a US-based sales agent, who specialized in UK and British brands. That was the small statement initially. The last couple of years I was there, 2017 and 2018, they ended that relationship and set up an operation with Fever-Tree employees in Brooklyn, New York, to strategize how US would operate, and to form relationships with the big distributors and also work on account management, needing to get into the influencing on-trade, the best hotels and bars, and big accounts in supermarkets. 

{audio:0:30:56} That was a completely different thing and a big investment for Fever-Tree in a way they hadn't done before. It's still holding asset light as part of the DNA. Capex last year was still sub £6 million, which is not a lot for a business turning over what Fever-Tree does. They are going into more third-party normal arm’s length commercial relationships, not unlike the one they originally had with the UK bottlers.

{audio:0:31:26} Is the bottling relationship a volume-based fee? Do they have to commit to capacity?

{audio:0:31:37} Yes, there are annual discussions with bottlers, because glass is a limited resource. Gas is also a finite resource and liable to supply issues. Annual discussions are about volume and price, and are intertwined. You need to commit to volume, but you also want to push the volume to drive price, so it is intertwined.

{audio:0:32:05} That UK bottler had a stake, pre-IPO, in the equity of Fever-Tree. 

{audio:0:32:15} They were still shareholders post IPO.

{audio:0:32:20} How does a bottler commit to a brand like Fever-Tree?

{audio:0:32:30} Fever-Tree is an attractive proposition because it's growth. If you are a US bottler, it's probably not in the early days the biggest thing you have. I don't know what contracts they have with other brands, but this is Fever-Tree back to being in growth, not in startup in the US. In terms of market share, it's still a low percentage of an enormous market, so they'll have to fight hard for bottling capacity. It's a challenge for this next period, no doubt.

{audio:0:33:13} Putting logistics aside, is there any long-term risk with those bottling relationships?

{audio:0:33:22} It's a different challenge from what Fever-Tree have had. When they were growing the UK, they had a true bottling partner and Fever-Tree was a big part of their business. In fact, they were setting up lines dedicated to Fever-Tree only. This is more commercial arm’s length, and the management of logistics of bottling and distribution in the US is a new bag of skills which requires more recruitment. Since the time I left there are six times as many employees.

{audio:0:34:07} How does that work because they mentioned hiring was a problem in the US? Do you have to hire specific people that work in bottling for your brand?

{audio:0:34:20} Probably more people who've worked for drinks brands before, who would know how bottling works and know how to sit on the Fever-Tree side of the fence and negotiate that; people who understand how the market works.

{audio:0:34:34} Are these bottlers part of big organizations in the US or are they independents?

{audio:0:34:40} They're enormous organizations. I don't know which ones they've tied up with, and it sounds like on the East Coast, it's a new bottling facility, so I'm not sure if it's a new build with Fever-Tree in an existing facility.

{audio:0:35:02} What do you think of the strategy of moving bottling to the West and East Coast?

{audio:0:35:12} I don't think it's only bottling. Right from the start, the US was always seen as a huge opportunity. Sometimes in these situations you need to take baby steps to start with, and the appointment of a local agent who understood the market but couldn't take the business to its full potential, but for the first few years, that would be the way to do it. Once you decide you're going to set up your own operation, which is marketing and controlling the intellectual property of the business and seeking out commercial relationships, you're into a different game, hence the recruitment, and the bottling comes with that. Regional/national distributors in the US will find Fever-Tree more attractive to work with if you own local bottlers as part of the package. It's all part of a universe they know, so you're going along with the brand, the bottling arrangement and the distribution; it's the whole process.

{audio:0:36:27} I found some of the costs interesting. The cost of goods seems to be two buckets; product costs which is the glass, ingredients and packaging, and distribution which is sea freight and intra US logistics, moving the product around. The distribution side has jumped 600 basis points from 2021 to 2022, and has gone from 3% five years ago to 13%, which is a 10% increase. How will this unwind in the long run?

{audio:0:37:17} It can partially unwind through economies of scale. They do need to get this whole process in place where they have distributors and bottling and the demand goes up. Once they build economies of scale, the unit cost will come down because it's a volume game.

{audio:0:37:38} So originally they were putting £150 million through one bottler because they were selling US product from the Somerset facility?

{audio:0:37:50} US revenues are only 70% to 80% of the UK market and it's five times the size. If you project forward where Fever-Tree sales could be and translate that back to the economies of scale they can get on the cost lines, there should be huge benefits to be had. They're not waving the flag too much on them pointing that's the direction that's going in, because it will take some time. There should be some significant movement on that, but it's not straight formulaic; the US is a different market to the UK. Certainly, in the early days, one of the interesting stats was Fever-Tree's product split in the UK and Europe, tonic water was by far the biggest product sold. The US has a smaller product and the more dominant product would be ginger beer for Moscow Mules, the cocktail they were mixing with rather than G&Ts.

{audio:0:39:04} Is there any difference in the product margin for any reason?

{audio:0:39:09} There's no doubt Fever-Tree has an immense opportunity globally over 10, 15 years, but thinking about the next 12 to 18 months, there will be a scaling period where you're almost splitting the number of units between Somerset and two in the US. Until that volume increases, you're not going to see economies of scale in production?

{audio:0:39:40} The next couple of years will be tough to see it dropping through. Hopefully the US will get to a good size or that will dominate, but talking about the rest of world opportunity, it's a smaller market, but to really exploit that. I know they're setting up Australian bottling. The same there, until the volumes translated there and you get the benefits of local manufacture and distribution, you won't get the margins.

{audio:0:40:16} When you were shipping product from Somerset to the US, the gross margin must have been half of the UK which was 50% or 60%. Was the price majorly different?

{audio:0:40:34} There's been a huge increase in unit cost of shipping so it wasn't as bad as the numbers you suggest, but clearly there's a cost of shipping product halfway around the world.

{audio:0:40:48} How do you look at the long run gross margin opportunity in the US versus the UK?

{audio:0:41:02} Long run, it's probably going to be broadly similar. We've been talking about the pain the business is currently going through, which will take time to unwind, but longer term there will be great prospects for margin in the US. It is both ends of the spectrum. It's working hard on driving the volume, which they are, on and off trade, but also getting the infrastructure set up so they can get the economies of scale on the cost line.

{audio:0:42:05} What can Schweppes do to combat Fever-Tree?

{audio:0:42:11} They missed the boat. Some people who were in the business at the time it happened admit to a certain arrogance of, this won't amount to anything; it will be a small interesting product, but nothing to challenge us. There's certainly some arrogance but also the structure they had didn't allow them to react in the same way. Different owners in different territories, not being able to come together and say, we have a problem. 

{audio:0:42:50} Fever-Tree is a materially different product, not just clever advertising. There is a fundamentally different product, using significantly better ingredients. They introduced a premium tonic which didn't go particularly well. The whole package wasn't particularly well thought through. Schweppes' position is a step up from a supermarket mixer. It would be too difficult for them to reposition into a premium at any scale.

{audio:0:43:32} Tim mentioned, on the last call, they've lost a couple of points in share in H1 because Schweppes have been so aggressive in promoting?

{audio:0:43:44} The price differential has probably increased; in the early days it was 30%, 40% premium. That seems to have widened so maybe they're marketing it as a cheap product. I'm not sure people switch between the two, but customers are very happy drinking Schweppes.

{audio:0:44:14} Andy talks about the magical formula of 50% gross and 30% EBITDA margin, which obviously we're a bit far off now. How do you look at that potential going forward? 

{audio:0:44:42} It is different because they've had to change in order to drive that. You couldn't have stayed as a local UK business shipping product with all the issues of freight delays. They have had to take the pain of investment, although it is partnerships with specialists so they're still not investing huge amounts of capex setting up plants. This is a period they always had to go through. It's unfortunate for the business that it comes on the back of the pandemic, which knocked the on trade and off trade, so rebounding from that while making a fundamental change to the structure of the operation, to allow them to be a truly global operator, not just have a product you can buy anywhere, but in volume. Andy's magic numbers may be there, but we've got to go through this period of building blocks in order to realize it. It's both ends of the spectrum; managing costs through volume and managing volume by continuing to be a premium mixer business.

{audio:1:00:13} Investors are also curious about the gross margin progression, how it's historically evolved and where it's going in future. 2017 gross margin was 53.5% which started to decline even as the business globalized and they were going to the US. 2019 gross margin was 50.5%, pre Covid and 46.1% during 2020. Obviously, it's declined from there to this year which arguably is an outlier of 34%. What was driving that 700 basis point decline in gross margin between 2017 and 2020?

{audio:1:01:18} It's a combination of things and, going forward, the jury is out whether they can start to increase margin. They definitely can with the infrastructure work they've put in place with bottling distribution, to get the economies of scale which will come through. Pricing is also key, whether they can pass on pricing, and the customer sees the premium. I don't know the US as well, but that must be a big question mark in the US, can they differentiate and get the price they need to grow the margin back.

{audio:1:02:04} What drove that decline in gross margin between 2017 and 2019?

{audio:1:02:11} There was an increased investment in marketing people. The early days margin probably wasn't sustainable at that level.

{audio:1:02:33} It seems like it was the distribution, moving the products to the US and other areas?

{audio:1:02:49} What do you think their gross margin could be in five years?