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I guess a good place to start is the total potential opportunity for Fever-Tree, in the long run, given where it stands today and the growth in the US and globally, £252 million revenue, last year; guided £300 million this year. How do you look at the long-run opportunity for Fever-Tree revenue growth?

Analyst 1: I think there are two fundamental questions that are essential to answer and you have to come at them a little differently. Firstly, can the US get to the same level of penetration of premium mixers as the UK, in aggregate? If so, how long is it going to take to get there? They don’t need to get there for the stock to work, but I think that is one of the big questions we have all got to figure out. Secondly, looking at the rest of the world, as they achieve more of their ambition in the US, can they turn their sights and get to some of these other regions where spirits have taken good share in general and high-end, in particular, has an opportunity? The rest of the world is really pretty small but, at some point, that could be as big an opportunity as the US alone.

When I look at this, I try to think about what the true duration is of the high-growth period in this company? For how many years can they truly grow at double digits? If it’s more than a decade, this thing is a pretty damn good investment. If it’s going to be less than that, not so much.

What could be the reasons why the US doesn’t get to that similar penetration for premium?

Analyst 1: I think there are a few that I try to think about, with respect to success in the UK and what they are doing here. Firstly, we just don’t drink gin the same way. Secondly, the spirits that the US drinks a lot of, pair already pretty naturally and pretty well with some very prolific companies that are out there, such as Coca-Cola. Rum and Coke; that is the name of a drink. Cola, in general, pairs well with the darker spirits and that’s harder for anyone to attack. If you look at the more natural ingredient colas that are just trying to get into the mainstream market, they’re tiny; they are like a pimple on the market. I think that’s a challenge. It’s a different type of drink and it requires a different kind of flavor balance.

Then the other challenge is – and it’s one of the questions I really struggle with – there is more competition in the US. There is also more inclination, in the US, to invest aggressively when the opportunity is large. Culturally, Fever-Tree is very disciplined and operating with that kind of discipline maybe to their detriment here. They might be better off marketing really aggressively, whilst the opportunity is wide open and doing more to preclude competition.

Those are the two things I really wonder about, in the US.

Analyst 2: I fully agree. To understand the potential in other markets, outside of the UK, you need to understand how big those drinks themselves – gin and tonic, Moscow mule and so on – can be in other markets. In the UK, I think Fever-Tree benefited massively from the explosion in gin and tonic but I don’t think we can expect something similar from the US. I certainly wouldn’t expect them to displace Coca-Cola, which is just too relevant.

For example, in Germany, I understand that gin and tonic is gaining some market share and that, of course, is helping Fever-Tree. Their mixers are so focused on those two drinks, you actually need the mixers themselves to grow.

Analyst 1: You raise an interesting one with the mule, because that is a pretty popular drink nowadays, and it’s also pretty versatile. You can have it with tequila or you can have it with whisky; let alone vodka, which is the traditional one. Ginger ale intrigues me, in general, because they have a good offering; it captures the zeitgeist of being lower calorie and natural ingredients. 80% of ginger ale is consumed separately from alcohol companionship. That’s the big opportunity. If you could get a wedge in and get people to buy into your product – ginger ale, ginger beer, whatever it may be – the ginger is just far more popular.

The one stat that I found that really piqued my interest, when looking at this question of how big this can get, is the relative market sizes of spirits in the UK versus the US. I think it is roughly 40 million liters of premium spirits in the UK but almost double millions of liters in mixers which is roughly 40% premium mixer penetration. In the US, there are 450 million or 460 million liters of spirits and 40m premium mixer liters, so only 10% premium mixer penetration. I wonder if there is any reason why the US premium mixer volume couldn’t reach UK levels?

Analyst 2: Has it happened in the UK, that people are drinking these premium mixers, without alcohol?

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