Fever Tree is a founder-led beverage business that sells premium mixers such as tonics, ginger ale, and club soda.
Over the last decade, two tailwinds have fuelled FEVR's ~50% revenue CAGR: premiumisation and spirits winning share from beer and wine. The company defined the UK premium mixer category which accounted for 43% of all mixers in H121. In the US, the premium segment is only 10% but is growing at ~3x the total mixer market.
In 2018, the company launched a national distribution agreement with Southern Glazers, the largest spirits distributor in the US. Fever Tree focused on building the brand equity with premium spirits companies in the on-premise channel and has the longest and deepest relationships with companies like Diageo and Pernod.
Fever Tree is a beverage company that operates closer to a premium spirits business with 30%+ ROE, deep distribution agreements and high brand equity in both channels that provide high barriers to entry for competitors.
We’re always debating internally which company we should cover next. We have a coverage list of 350+ quality companies that we want to study, we just don’t know specifically in which order.
The potential duration of sustainable growth is a top variable we consider when making such a decision. Beyond the obvious benefits, the duration of growth is important because it gives us the best chance to compound our knowledge.
We want to build company-specific knowledge today that we can build on for decades. We also want to get to know founders and management teams that will still be playing their game in years to come. By spending time on companies with long durable growth opportunities, we give ourselves the best chance to compound company-specific knowledge. Years of watching how companies and managers behave can also help build conviction in future challenging times.
A quote from a recent interview with Gavin Baker of Atreides Management reminded us of this point:
“Everybody looks up to Warren Buffett, but almost no one does what he says he does. Warren Buffett has said he doesn't do due diligence. This was a statement about Precision Castparts which is one of his largest acquisitions ever. And everybody just ignored that comment, but it was a profound comment. And what he meant by it was that he didn't need to do due diligence. He had been reading every 10-K published by Precision Castparts for decades. He didn't sit down and do some 60-day deep dive. He didn't need to because he had been doing due diligence on Precision Castparts for decades”
In this regard, Fever Tree (FEVR) is similar to Precision Castparts; a company that we believe has the potential to grow for decades.
We recently held an In Practise Investor Dialogue with two Fever Tree shareholders to explore the investment thesis and the company’s growth opportunities.
When looking at the potential duration of FEVR’s growth, one investor asks the following question:
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