Over the last decade, two structural trends have been shaping the global spirits industry:

  1. Spirits winning market share from wine and beer
  2. Premium segments winning share in all categories

From 2014-19, the global spirits volume CAGR was 1% compared to 0.2% for wine and negative 0.4% for beer. After 3-4% price increases per year, the total spirits market value grows ~5% per year but the premium and super-premium segments are growing 11% and 8% respectively. From 2010-20, the US premium category has grown from 19% to 27% of total volume. We could still be in the early innings of the spirits premiumisation trend.

The premiumisation of spirits has gone hand in hand with the premiumisation of mixers. Over the last 3 years, the premium mixer category has grown 31% and 15% per year in the US and UK respectively. However, the big difference is the penetration level: in the US, the premium category is only 10% of total mixer value versus over 40% in the UK. This growth opportunity is what interested us about Fever Tree; if the premiumisation trend continues, there is a potential multi-decade growth opportunity ahead.

We interviewed a Former VP of Sales at Q-Mixers, Fever Tree’s largest premium competitor, to discuss how the brands competed in the US on-premise channel.

Although both Q and Fever Tree serve the premium mixer segment, there is one fundamental difference between the two companies: Q was built in the off-premise channel whereas Fever Tree was built on-premise. This is important because the go-to-market distribution channel shapes the DNA of a consumer brand. Q’s founder got his first break when he sold a pallet of mixers directly to Whole Foods and built a direct sales team to serve the large grocery chains and independents across the US. From the start, Q’s product was optimised for the retail channel:

"Going to that channel first was more about creating a package and a size that made sense for retail first. In on-premise, the outer package is less important and, in retail, it was about single-serving size to the individual consumer who was making their own cocktail at home...In a retail environment, your product is your sales person. There is nothing else in the store, selling your brand. Your package has to deliver on its messaging, the story and convenience. It’s critically important in retail to make sure you have got your package, your pricing and your messaging on your bottle or your outer package right. It’s very hard to go to off-premise first and then to on-premise." - Former VP of Sales, Q-Mixers

On the other hand, Fever Tree was built with bartenders in the on-premise channel. The company has a national agreement with Southern Glazers, the largest spirits distributor in the US, and partners with large spirit companies such as Diageo and Pernod Ricard. Fever Tree has focused on winning the hearts of mixologists to provide the best drinking experience in clubs and bars globally.

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