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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

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:0:00:20} Shelley, can you share some context to when you first joined Q, in terms of the size of the business and where the business was at?

{audio:0:00:29} I joined back in 2016 and I was approached by a headhunter because of my experience with premium brands in the industry. The big piece was that I had a lot of experience in growing smaller brands to very large brands and being a disruptor. Brand building is in my wheelhouse and they needed someone with fast-paced growth experience, the ability to wear multiple hats and see the forest for the trees.

{audio:0:00:59} What drew me to them at that point was that they were heavy grocery and they had that channel pretty wrapped up. They had national placements in places such as Target, Safeway, Kroger and all the big hitters. But where they really didn’t have much visibility was in the on-premise sector. That is something that I have a lot of experience with, in terms of driving restaurants, bars, nightclubs and hotels. They just didn’t know how to progress there. They were a very small team and, as I said, very heavy on the chain grocery part of the channel.

{audio:0:01:34} Why did Q Mixers originally go-to-market in off-prem versus on-prem?

{audio:0:01:40} It’s a fascinating story and I think this really goes to the brand’s DNA and the tremendous business acumen of Jordan Silbert, one of the founders. He was very smart in the way that he first created the brand, with a little bit of awareness, in Brooklyn, New York, where he was based. He understood the importance of influencers, so he did an event in New York and he specifically sought out some media people that he wanted to get in front of. He put the brand in danger of being sold and put it in front of this media guru of the New York Times. She interviewed him, published an article and felt it was the best tasting mixer.

{audio:0:02:25} The world started calling, but Jordan realized that the quickest route to market was the grocery channel and it was Whole Foods that aligned tremendously with his brand; non-GMO, local, hand-crafted and it had a great story behind it. He was given an opportunity to prove himself and the brand, so he went to Austin, Texas, where they’re based and they did a wet demo in the store and they sold a pallet in one weekend. The rest was history.

{audio:0:03:00} It was an opportunity that came to him, but it was completely brand aligned. Jordan knew who this person was, sought out this person at the event, to make sure that his brand got in front of her, to have the article written. There is nothing more powerful than the right press and creating consumer awareness. When you get the consumer awareness, that will drive distribution and demand.

{audio:0:03:25} How do you think that history of building brand in the off-premise channel defines the DNA and the philosophy of a company?

{audio:0:03:33} 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. It wasn’t about volume, in the sense that the bartender wanted to use multiple pours out of one package. It had to be very colorful to stand out on the shelf. At that time, the competitor was Fever-Tree and their package was very monochromatic. Jordan realized, very quickly, that if he had something colorful, lively and a point of differentiation, he could stand out.

{audio:0:04:27} He went with yellow because of Schweppes who, at that time, was the leader of the category; it still is, in terms of volume brands or value price brands. Fever-Tree didn’t do that; they used muted grays, browns and greens. The consumer’s subliminal buying pattern is yellow for tonic, green for ginger beer, blue for club soda. Jordan was really smart and intuitive to think about the color cues.

{audio:0:04:55} How is the price positioning, versus Schweppes, in the off-prem, different?

{audio:0:05:01} It was big trade up. Price was certainly a premium and, in some instances, depending on the stores, more premium priced than Fever-Tree. As we discovered at the time, for people who shop at Whole Foods, it’s not about the price; it’s about convenience, selection and about the brands being authenticated and validated by their buying team that these are non-GMO, highly sustainable and localized. Whatever they are buying is a great product for that home.

{audio:0:05:34} That was the mindset, so price as a premium wasn’t an obstacle. Premium pricing was always his mantra; and not a lot of discounting.

{audio:0:05:51} Are there any limitations for Fever-Tree, shifting from on-prem to off-prem?

{audio:0:05:59} Because Fever-Tree is a publicly traded company we are very lucky in that we could gain all the information about what was going on. Early on, Jordan discovered that they spent about 60% of their business in on-premise, whereas when I joined the company, only 10% of our business was on-premise. They were leading that space and they were the only ones having a conversation in that space. It was Fever-Tree or it was mixers on the gun.

{audio:0:06:27} There wasn’t much competition; there was no one controlling the conversation. Fever-Tree was the only alternative available. When Jordan looked at that data and realized he was dominating in the grocery space, doing very well in terms of indexing, velocity and dollars per store, he thought that if he took the same winning style, structure and product to on-premise, we could have a competitive advantage there. The consumer was already purchasing and buying it in retail.

{audio:0:07:02} It’s really interesting because spirits launch and build their brands in on-premise, they build that consumer awareness and then the consumers go to the store and ask for it. Whereas Jordan did the reverse. The consumer is already aware of the brand because they were purchasing and buying it. We had a story to tell on-premise before we even got there and were able to show them the statistics on IRR data and ACV. Your consumer is already choosing Q versus Fever-Tree in the on-premise environment.

{audio:0:07:30} Do you think it is easier to go from off-prem to on-prem or the reverse?

{audio:0:07:34} It’s harder to go to off-premise first. What I’ve discovered, during Covid, is that most retailers – especially independent retailers – make their choices based on what people are demanding; those people who walk into a store, looking for a brand that they saw at a bar or restaurant, an ad billboard or they heard about it on social media. They are already looking for a converted customer. It’s hard to convert when you are on the shelf because, at the end of the day, most retailers aren’t working the shelves like a bartender would. They don’t say, oh my goodness, you must try this spirit, this mixer because they craft a beautiful cocktail and presenting it to the consumer in the bar or restaurant.

{audio:0:08:11} 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.

{audio:0:08:37} On the flip side, when you win in retail – especially with a Target, Whole Foods or Safeway – you’ve got one buyer and if they believe in your brand and they take the risk, you go from zero to 100mph in 10 minutes. You have zero stores; you get a cluster in a store and then next thing you know, your cluster is 45 stores, then 100 stores, 200 stores. Getting distribution is very swift and your ability to have vast velocity, very quickly is much easier once you’ve got a compelling story in retail.

{audio:0:09:14} What we are learning, right now, is that a lot of brands are launching in retail and it’s working because we’ve now got a much more savvy consumer. When we launched Q Mixers, I think it would have been very difficult. Jordan is a testament to this phenomenal growth. He went to all these retailers first and had one buyer; Target, AVP, Safeway. He wasn’t going to individual locations; he was just using the model of one account and then expanding out.

{audio:0:09:41} The other thing that was critically important was that he had a testimonial in Whole Foods. They were a leader in the grocery market with that right high-end premium consumer. Every grocery store wants that type of consumer because they spend more, they are more loyal and they frequent the stores more often. The fact that he had a great case study already locked and loaded really helped him in expanding further across the country.

{audio:0:10:05} From Fever-Tree’s point of view, they have focused so much on the on-premise channel, building a brand with the big spirit companies and now they are expanding to off-prem in the US, which is obviously a completely different beast from the UK and Europe. How do you look at the potential limitations or challenges for Fever-Tree gaining scale and distribution in the smaller C-stores, the smaller accounts, in the off-premise channel, across the US?

{audio:0:10:34} I have to give credit to Fever-Tree because they did a great job. Something to consider as well is that there is room for both players. The market can bear multiple brands and you are seeing this right now with Blake Lively launching a new mixer and many other companies coming out there to challenge the mixer category; and now the big brands are getting into the mixer game.

{audio:0:10:57} Fever-Tree had a challenge in the sense that their wheelhouse was certainly on-premise; the influencers, the key bartenders, the gurus of the marketplace, such as the Tony Abou-Ganims and the Max Solano. These great strong bartenders were advocates but once we got in front of them, they actually switched and they advocate only for us. We managed to gain all those influencers away because, at the end of the day, people buy with what they taste and, in terms of the taste profile, our product delivered more than Fever-Tree.

{audio:0:11:29} Let me go back to your question about Fever-Tree going from on-premise to off-premise. They went the grocery route too, but it does depend on the state; in California it is a chain market. They looked at our path in retail and just really mimicked what we did. They started big and then they went to small. In terms of the C-stores, the corner stores, if you rewind to four years ago, those stores weren’t a player; it was maybe 10% or 20% of the total volume in California, for instance, which is the biggest spirit market in the US. Even if they weren’t winning in those smaller retailers, it really didn’t make that much of a difference. You still had to win in the Costcos, the AVPs, the Safeways and the Bristol Farms.

{audio:0:12:18} It’s important to know that, particularly in California, you have to win in the chains and they already had incredible awareness, at that point. It wasn’t that hard of a trajectory for them; they just weren’t very creative. We got very creative with our partnerships, our route to market and the programs that we ran in grocery that really made a difference. And people really loved our product.

{audio:0:12:40} You joined Q Mixers and you were tasked with launching on-prem, round about 2016. What was the strategy?

{audio:0:12:49} The strategy was fairly simple. We had great distributor partners across the United States and it was about messaging. Our story was a compare and contrast; American made and local, versus UK and foreign. We have Agave, which is a low-glycemic, very low-calorie sweetener in our mixers versus sugar. Colorful package, easy to draw attention to on the on-premise back bar and the retail shelf versus dull, muted colors. Non-GMO, gluten free, kosher versus none of the above.

{audio:0:13:28} There were a lot of things that we were doing differently. First of all, we went to the accounts that understood the cocktail culture. If they already had a bottled mixer program, or even if they had a gun, our carbonation is our story. If you put our liquid into any other glass or can, it would blow up. Our carbonation psi is much higher. Why does that make a difference? When you are mixing a cocktail, typically, three quarters of a highball is mix. If the mixture isn’t highly carbonated with really tiny bubbles, the ice and the weight of the spirit will crush those bubbles and you will have a flat highball. Ours doesn’t do that.

{audio:0:14:09} That was the biggest thing for us. When we poured cocktails, Fever-Tree or on the gun, side by side, just seeing the bubble still pop up in the glass versus the flat Fever-Tree or gun cocktail, it was an easy sale. We didn’t even have to talk about pricing. It was all about the carbonation and the fact that we had a lot more benefits. Selling is all about features and benefits and bridging that gap and that was a big selling feature for us.

{audio:0:14:35} What makes Q highly carbonated relative to Fever-Tree?

{audio:0:14:41} It’s also setting your psi when you are bottling the product. Our glass is the same thickness and weight as Champagne so our packaging materials are much higher quality, to withstand that psi pressure. We also have a resealable screw top, which Fever-Tree didn’t do, so there is zero waste. Once you open up a Fever-Tree you can’t reseal it. Even with the product sealed, even in our large sizes, the product can stay effervescent for many, many days. Whereas Fever-Tree goes flat.

{audio:0:15:17} Can they not change that? Could Fever-Tree not make it more carbonated, to compete?

{audio:0:15:21} They certainly can but they never did. It’s not a patented process but it requires more glass, so higher cost of goods. It also requires different settings in your facility and perhaps they didn’t have the ability to do that. When Jordan first started out, I know that it was very hard to find a bottler that could have that high psi. He found one in upstate New York that he used.

{audio:0:15:55} So as you went in to pitch the product in the on-prem accounts, was it really a compare and contrast?

{audio:0:16:28} Firstly, it was a compare and contrast if they already had a bottled mixer program. Secondly, it was really speaking to the buyer’s commitment to their cocktail program. It’s one thing to offer a collection of fabulous, high-end premium spirits, have the best lighting, attention to detail with the glassware and the chef is finding the most sustainable farm to table food. But then, at the point of purchase, at the point of consumption when the first guest experience is them having the cocktail before their meal, they get a flat cocktail that is overly sweet, that masks the beautiful flavor of the spirit. Our big pitch was, why would you go to all this trouble and not put that type of attention to detail into the mixer?

{audio:0:17:15} As I said, when you’re having a highball, the mixer is three quarters of that cocktail. You need to invest that same type of energy and commitment to the mixer. At the end of the day, it’s pennies difference. Whether you charge $9 or $9.25, which more than covers it, you actually increase your dollar margin, you are providing a better guest experience. When the drink is more effervescent and has more bubbles, consumers actually drink it more quickly and you can get that repeat purchase. If you have a great cocktail, people are going to have a second one. If you don’t, they’re going to switch to have something else or they will just stick with water.

{audio:0:17:52} We had a beautiful cola and, at that time, there was a big push around the amount of sugar that people were consuming. Having a very low sugar mixer really appeals to people’s attempts to have healthier drinking and eating habits in their dining out experience.

{audio:0:18:13} What is the difference in calories or sugar in Q versus Fever-Tree?

{audio:0:18:18} Depending on the mixer, sometimes we are half as many calories or a third as many calories. In the case of Schweppes, we are a quarter of the calories.

{audio:0:18:27} Is it really that much better for you than Fever-Tree? They will also claim that it’s healthier than the gun and Schweppes.

{audio:0:18:36} This is where the light bulb went off in Jordan’s head. Before he made his own mixers, he was drinking Schweppes tonic and his wife was pregnant at the time and she was having a 7UP. He looked at the back of both of the products and they had the same amount of sugar and the only difference was quinine flavoring. People do like a G&T and if you have a couple of G&Ts and multiply that by several times a week or a month, that residual sugar adds up very quickly and it’s a quick thing to fix, particularly as Agave is plant-based, easily digestible, with very low sugars and is low on the glycemic scale.

{audio:0:19:19} People do look at their calories. If you look at all the RTDs now, they are all touting how many calories are on the can and that is very important to people. The calorie content was a big selling feature for us.

{audio:0:19:31} When you look back at the times you were winning accounts in on-prem, what would you say were the core reasons why a bartender would replace Fever-Tree with Q Mixers?

{audio:0:19:45} It depended on the account but, often, it was the flavor. The bartenders, the buyers, would prefer our flavor profile. Our ginger beer is much more spicy and had a cleaner, crisper taste. Our ginger ale has rose oil in it so it is much more aromatic. Ginger ale is one of the hardest things to make so we had a really complex recipe that was very layered and really added to whisky-based drinks. Our ginger beer was very dry and much lower-calorie than many other ginger beers in the market. We used real ginger and 99% of other ginger beers do not even use ginger; they use flavorings. You could see the ginger in the liquid itself; if you put it in the fridge, it would often get cloudy because the ginger was chilling into the liquid. It was really flavor that made a huge difference.

{audio:0:20:34} Low sugar was also a factor. In a cocktail program, drinks must be balanced, which means a balance of tart and sweetness. If you have a mixture that is predominantly sweet, it will put your drink out of balance. One thing about our mixers is that they really helped to balance that cocktail program.

{audio:0:20:51} In terms of price, Fever-Tree and ourselves were very close, so it really wasn’t always a price conversation. In terms of selling against the gun, price was a huge jump for people but it was easy to explain when you talk about a better cocktail program. A chef is not going to put out a low cut of meat that is not going to augment his entire menu. We always compared our pricing to what the chef was doing in the kitchen. Again, we just appealed to those customers that believed in investing in a cocktail program. We also really drew attention to the gun and how unclean and unsanitary the gun system is, compared to having the bottle put down in front of the consumer and you poured the drink; that was called the spectacular serve.

{audio:0:21:40} It is all about entertainment. When you are pouring out of a gun, it’s very different. In the same way that you wouldn’t put dirty cutlery in front of your customer and you would have a beautiful clean plate with no dripping, it’s all about show and entertainment.

{audio:0:21:56} That is the European way of serving a drink, it seems. We would get the spirit in a glass and you would get half of the bottle into the glass and the rest stood next to the drink, to drive awareness. Do you see that changing in the US?

{audio:0:22:12} Absolutely; you are seeing restaurant chains doing that. Masters is a perfect example. When you get your Martini, they shake it tableside and then leave the little shaker for you to top it up, so people think they are getting a bit more. Milkshakes is also a good example. Nowadays, when you order a milkshake at a great restaurant, they bring the rest of the milkshake that is in the cup and they top it up. It is all about the art of entertainment when you are sitting in front of the diner and giving them a reason to feel special and spectacular. At the end of the day, they can just go to the restaurant or bar down the street.

{audio:0:22:50} People go out for a reason; to get entertained, to feel good about themselves and to have an experience. Those consumers will rave more about accounts that give them that experience.

{audio:0:23:03} So there was really no difference in pricing, between Q and Fever-Tree?

{audio:0:23:09} It was marginal. To get technical, there are certainly programs that you can build out. In terms of large accounts, you may have a program where you have 50 or 100 case deals, with a grocery chain. Right now, BevMo is having a program, so you buy one of these and you get a second one for five cents; we did that kind of program, just like Fever-Tree did. We did provide some price incentives, where legal, where you could encourage them to try something. You pay full price for Q Tonic, which is our number one seller, and you can try a new flavor – like elderflower or pink grapefruit – for a reduced price.

{audio:0:23:52} What do you think of Fever-Tree’s recent price strategy, when it reduced the price by about 20% last year?

{audio:0:24:00} That was directly related to competition. When people start dropping their price to be competitive, firstly, I guess, it’s a compliment because, all of a sudden, a competitor is taking a piece out of their pie. Secondly, it’s difficult because it drives the category down. If anything, they should have taken their price up. People understand mixers and their importance and are willing to pay for more, if the quality and product is there.

{audio:0:24:31} When you start discounting, I think it’s a slippery slope because it’s hard to go back up when you discount. I haven’t looked at the latest stats but what really hurt them is that Kroger is the biggest grocery chain in the United States and Kroger divided the country in half. Half their accounts have Fever-Tree and half have Q Mixers. We did very well in the stores that we were in; we were selling more sell-through per week, in unit sales, compared to Fever-Tree and Kroger put Q Mixers in all the accounts. We jumped into their space because of our success in the other half of the market and it hurt them.

{audio:0:25:14} Just in California alone, in four years, we went from selling roughly 10,000 cases to 225,000 cases and most of that came from Fever-Tree. They saw that people were certainly eating their lunch and price is the quickest thing to drop and people want a deal. But the challenge is, when they find another product, people are willing to pay for better quality.

{audio:0:25:39} Why do you think Fever Tree actually dropped the price?

{audio:0:25:47} The category started to get cluttered. They are so many mixers in the marketplace, especially when the big soda companies start to get into the game. Schweppes has a heritage line and they’ve got some premium mixers in their profile. It is still Schweppes but they are becoming more stylized; it’s not a short, stubby bottle. Schweppes, Pepsi and Coke own the shelf. They pay slotting fees; they pay for bays. There is a lot of things that you can do in the non-alcoholic space that is completely legal and it’s hard to compete with that.

{audio:0:26:31} Closing the gap from a premium price to a commodity price will attract those Schweppes consumers that are willing to jump up a little bit in price, because Fever-Tree has come down for them to try something better. I’m not sure if the strategy has panned out or not, but it’s easier to leap from a smaller price gap as opposed to a much larger one. Maybe they will gain a wider base and introduce Fever-Tree to a new consumer completely.

{audio:0:27:00} I think Fever were only three times more expensive than Schweppes here and, in the US, it was around five times, so they’ve actually had to reduce that a bit.

{audio:0:27:09} Remember, also – and this was one of our selling pitches – Fever-Tree was all imported. You are bringing over a bottled product so there is weight cost, ocean freight and so on. We decided to a do a very different business model because it was all about a carbon neutral footprint. We have three different facilities across the United States so we can ship much more strategically, reducing shipping costs. We also handled shipping. Most times the buyer will pick up from your warehouse. We decided to handle the shipping so it brought our costs down.

{audio:0:27:43} When Fever-Tree moved their production to the United States, their COGS went down as well, so they could close that gap a little bit more because they weren’t paying that extra ocean freight.

{audio:0:27:53} They’re moving bottling now. I think they plan to finalize that by Q2 next year. As you said, that reduces their COGS so their margin can, hopefully, be the same as shipping it from here. Do you think that could make them a lot more competitive when they bring their bottling to the US?

{audio:0:28:12} Absolutely. Look at where the cost of transportation is right now. Shipping is everyone’s biggest challenge. Fuel prices are a huge part of your consideration when you are building your COGS, to what your retail price is going to be. For them, bringing their facility over here, you have more control. You shrink your carbon neutral footprint, if that is something that is a message for them, and your route to market is much quicker. Right now, the biggest challenge is out of stocks. People just can’t get their product to their retailers or to the on-premise accounts at the moment; it’s a real challenge in the US.

{audio:0:28:50} Big brands are having massive out of stock problems and when you move your facility closer to where your main buyer is, you eliminate that opportunity of being out of stock.

{audio:0:28:59} What was your biggest challenge driving on-prem adoption for Q Mixers?

{audio:0:29:05} One of our biggest challenges was probably being late to market. Fever-Tree was already there, entrenched. A perfect example would be someone like an MGM Grand that owns all the casinos in Vegas. They get cocktails, they get service, they get premium; Fever-Tree was already there and their route to market was very strong. Changing a mixer in an on-prem account is, typically, one of the last things that a buyer looks for. It’s like changing your fork and your cutlery. It’s not a priority; it’s not an issue. It’s easier to change a spirit or a menu item.

{audio:0:29:45} It’s a long lead cycle; it’s a long buying cycle. Sometimes it would take as much as a year or two, to convince a buyer to make that dramatic change, especially if they have the entire portfolio, because everyone is buying in different cycles. Even though they are purchasing and buying mixers every single week – and a really good on-premise account could be buying as many as 10 cases a week – it’s a high-volume number and to make such a drastic change, especially if Fever-Tree is good enough, is it really worth their time and effort to switch out all the outlets, in all the resorts, to bring in a new product?

{audio:0:30:27} So the lead time was a challenge, where people are already entrenched with a partner. The way that the distribution system works in the US is that, if an account or group of accounts are a Southern house or a an RNDC or Breakthru house, they decide with their biggest partner. The way they buy, bundle sales and all the discounts is that they would rather stick with brands that are within that portfolio.

{audio:0:30:57} We really had to leverage our RNDC or Breakthru network, to partner with their spirits and their accounts first, before going after Southern’s accounts because Southern would just walk in and make a big spirit deal with Moët Hennessy and say, by the way, Fever-Tree is part of it, so we just can’t get in. Mixers was the last piece of the puzzle when you made huge contract deals or big partnership deals with branding. If you weren’t part of that proposal, there was no way to break in. Distribution alignment was a big challenge.

{audio:0:31:28} Is that how on-premise accounts actually buy the mixers then, as part of a spirits package?

{audio:0:31:35} Typically, yes, or long-term renewals. If a resort group sold a lot of Champagne, they would have access to a portfolio that was with a distributor that had the majority of Champagnes or the majority of Cognacs and our mixer wasn’t in that portfolio. There are a lot of legalities in spirits. You can use mixers as a way to butter the toast or seal a deal because there are fewer laws around it. They could bundle up an entire spirit deal for a hotel group and say that the first fill of all the club soda is gratis because of Fever-Tree. It is hard to turn those things down as it’s part of the bigger picture.

{audio:0:32:26} Taking the MGM account, for example, so their bartenders or their buyers would have an idea of the portfolio of spirits and Champagne that they want they would then find a distributor. If it is with Southern, it just so happens that the Fever-Tree brand would come with that; or if it was with Breakthru, then you would get Q with that bundle?

{audio:0:32:46} Right; because of the consolidation of the distributors in the US right now, there are really three houses. The Breakthru RNDC merger didn’t happen otherwise there would really have been just two big houses. Often, they bundle up spirit proposals to these hotel, restaurant or resort groups and the mixers are part of that. If you are not with that house that wins the bid for the spirit one or two year contract, then you can’t get in.

{audio:0:33:18} How do you ever get into these accounts then?

{audio:0:33:23} It’s difficult. One thing that is still great about this business is that it really is about relationships; it’s about building those relationships and those loyalties. Sometimes accounts will step back and say, I will take the entire spirit program, but my mixer program is going to be this. People just love our ginger beer; people love our grapefruit. For the longest time, we were the only ones with grapefruit and Paloma was the second biggest drink behind Margarita, so we won with that. We would get one SKU into an account that was predominantly Fever-Tree, we would win on the relationships, we would run some programming, we would get creative with Paloma Poolside in Vegas, for instance.

{audio:0:34:12} Down in LA we would do great things with our day pools and nightclubs and people really loved what we were doing. Our brands are very colorful, they love the flavors and they are super low sugar. We wore them down with success, partnership and relationships. Often, Fever-Tree would just get the business because they are part of that big portfolio, but they would never take the time to invest in direct relationships with accounts. We always won because we made the effort in the street.

{audio:0:34:42} You would, literally, go direct to the bigger on-prem accounts?

{audio:0:34:47} Yes, and forge our own relationships with the buyers and try and get creative with programming, offering different things, such as in-room programs, poolside programs, nightclub programs. Because we were aligned with someone like a Tito’s, who are one of the best-selling vodkas out there, we would tie in a great American Mule program or bundle pricing with Tito’s and ginger beer so we could go in and have an impactful program that was tied to these brands. So we would win with one SKU and, eventually, slowly erode the rest of the SKUs.

{audio:0:35:24} This on-prem strategy is really at the heart of Fever-Tree. It is built with spirit companies and that, supposedly, solidifies its position in the market. Whereas Q Mixers has come from the completely opposite direction, where it has built a brand with the end consumer and has then gone direct to on-prem accounts. How do you see this evolving between the two brands, in the on-premise channel, over the next five years?

{audio:0:35:51} It’s going to be very interesting. We can’t ignore the fact that we’ve got a pandemic and, during the pandemic, people drank more, consumed more and they educated themselves, as well. At the end of the day, the consumer isn’t as capable as a bartender in making a fabulous cocktail. Look at RTDs. Gin and tonic RTDs, whisky and soda RTDs, these are drinks that anyone can make but people are still buying RTDs because of convenience or they’re fearful that they don’t have the right ingredients.

{audio:0:36:28} I still believe that on-premise is going to be a huge opportunity. At the end of the day, people really want to get back to dining out and restaurants and bars. They want to have a great experience, because they’ve been drinking at home and they want to try new things. I think places are trying to captivate the consumer to their location, so they have to provide a better product, a better entertainment experience, a better cocktail program or a better dining experience, so they win that consumer versus the person next door. People don’t want to have to make cocktails at home. They are doing it and that is why the rise of RTDs was so successful. People tried to do it and I won’t say that they failed miserably, but there is a reason why mixed cocktail RTDs are so massive; it’s because people don’t feel comfortable making their own cocktails. They want someone to make them for them because they have a hard time understanding balance. Balance is a real nuance. You have to understand sweet and tart and how to mix those together.

{audio:0:37:39} Do you think that if Fever-Tree keeps owning on-prem with the Southern relationship and Q continues to scale in off-prem, there will always be an outweighed balance in the mix with those two companies?

{audio:0:37:52} Yes; with on-premise disappearing in the last 18 months, Q’s business soared and I’m sure Fever-Tree’s did as well. To make a gin and tonic is fairly easy and consumers wanted to buy a better product because they were not out spending $50 to $100 a night, in a bar; so why not spend $4.99 or $5.99 on a four pack and now they’ve got four cocktails. I think the strategy has to be both but I think, ultimately, when the world goes back, on-premise will deliver more volume than retail, so they have to keep their eyes on the on-premise piece.

{audio:0:38:30} Right now, retail and independent retail has become far more important. The small corner store is now seeing a rebirth of business they never had before so you’ve got to walk that fine line. People are seeing that their local liquor store is now carrying decent products, decent mixers, so they’re not going to Safeway or Kroger; it’s easier to get to these small stores. Online is also a big piece of the business that they’ve got to focus on. Something that we did really well, before ecommerce was as huge as it is now, was that when you buy your gin, up comes the suggestion to add a four pack of Q Tonic to your basket, to make your gin and tonic.

{audio:0:39:12} Mostly independent retail. Grocery tried to do it but most people are going to grocery for food. It’s the Drizlys, the Caskers, the ReserveBars, the Mash&Grapes; it’s all these ecommerce sites. When you pick your spirit, the mixer should come up. At least with the ones we worked with, we made sure our four pack was set up front, so people are forced into that incremental purchase.

{audio:0:39:38} It’s basically replicating what happens at a grocery checkout where you’ve got the gums and the pops there, so you’re grabbing impulse purchases as you go to the checkout. We’re trying to do that online. The consumer has spoken; they are super comfortable with online buying. That is why you see someone like Southern Wine & Spirits buying ReserveBar and Moët Hennessy going DTC. Pernod is doing the same thing. People are buying up these e-platforms so they can push their products DTC and go around the three-tier system. The three-tier system is evolving tremendously, as well.

{audio:0:40:12} What is the rough percentage of Q’s revenue that comes from ecommerce?

{audio:0:40:18} I don’t have access to those numbers since I left; I left before the pandemic. But I would assume so. In early 2020, before I left, we really tried to work with those independent retailers that did have an online presence and Caskers were one of them. With a bunch of these retailers, we tried to own that space. No one was talking about it and it was an easy sell because we were providing an impulse purchase. For most people, when they have spirits in their shopping basket online, and a mixer pops up, it’s pretty easy to say yes; or for $2 more, you get a four pack. We provided a solution to these early adopter online retailers to get some incremental business.

{audio:0:41:06} Is there any reason why Q or Fever-Tree can’t be the mixer in an RTD?

{audio:0:41:16} It’s interesting that you should say that. It’s something that I was actually trying to do, early on. Most RTDs are cans and the psi in cans is lower than bottles; you can really control the carbonation in bottles. The can is more fragile than cardboard. Cans are very fragile products, just because of the nature of the carbonation inside. For instance, if one can gets a leak in a four pack, it will destroy the entire pallet because the liquid will seep out and crush everything. It is very hard to control the carbonation to the level that we feel is necessary in RTDs. It is a space that Jordan didn’t want to explore. I do know that Fever-Tree has their own RTDs.

{audio:0:42:13} It’s the carbonation that could make it difficult for Q?

{audio:0:42:17} Yes; I think Q is missing out. I think they could own the perfect Paloma; they could partner with a spirit brand. There could be an opportunity for a Hendrick’s and tonic or stick with the Tito’s Mule. Tito’s and Q could partner up and do a fabulous American Mule.

{audio:0:42:48} What was the rationale of choosing two distributors as opposed to just one?

{audio:0:42:53} Ted Roman, who was hired to lead the country, had very strong relationships with RNDC and Breakthru. At the time, Breakthru was rumored to partner with RNDC so it would become a national network. They didn’t. We picked up Southern Wine & Spirits in a couple of states because of my relationship with them that was longstanding; we were able to partner with them in the Northwest.

Former VP of Sales at Q-Mixers

Q-Mixers vs Fever Tree: On-Premise Channel

Former Director at Fever Tree

Fever Tree: UK History and Gross Margin Outlook

Fever Tree

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.  