Why Fever-Tree and Molson Coors are perfect bedfellows

The news Molson Coors has taken an 8.5% stake in Fever-Tree has sent shares in the London-listed mixer brand fizzing. They’re up over 20% since details of the ‘strategic partnership’ – which will see the brewer take over US production, sales and distribution of Fever-Tree – were made public last week.

The £71m deal, which Fever-Tree CEO Tim Warrillow says will give his business the “size and muscle” to supercharge growth in its largest market, is another example of the blurring of categories between alcohol and soft drinks, following Carlsberg’s £3.3bn capture of Britvic last month.

So, why were the two companies keen to get together, and what will the partnership mean for their respective fortunes?

Transformational

Fever-Tree has come a long way since landing in America in 2008. US sales overtook its domestic market in 2023, and grew by 7% to £60.3m in the six months ended 30 June 2024. It derives 35% of total revenues from the market, while also being the US category leader in both tonic water and ginger beer.

However, by Warrillow’s own admission, the US is “an enormous market, fragmented and diverse” and tricky to operate in “without a national distribution and sales footprint”.

Until now, Fever-Tree operated a hybrid model, partnering with Southern Glazer’s for on-trade distribution, while managing its own sales into retail. Product, meanwhile, was mainly imported, with 20%-30% co-packed in market.

A deal with a brewer on Molson Coors’ scale is transformational. Elevated glass and transatlantic freight costs have dragged on Fever-Tree’s margins in recent years, but the partnership promises to permanently solve its US production headaches, while delivering significant economies of scale. 

“The deal will allow Fever-Tree to partner with an expert in supply chain and drive higher profitability whilst also increasing A&P,” notes Jefferies analyst Ed Mundy. Stronger distribution “should allow US sales to increase 80% by 2028”, he predicts.

As well as giving Fever-Tree a guaranteed share of profits from 2026 to 2030, the deal provides the supplier with “newly freed-up cash flow”, says AJ Bell’s investment director Russ Mould. It means funds no longer tied up in the US “can be potentially returned to shareholders or invested in expanding in other parts of the globe”, he adds.

Molson’s ambitions

Molson Coors’ US portfolio outside beer currently includes only Zoa Energy, and this lack of exposure to soft drinks and low & no beverages should help ensure Fever-Tree gets the attention required to thrive. 

“Alluring as their network is, we wanted to make sure we were going to be a priority within it,” Warrillow says. “They have not just assured us that we are, but have put their money where their mouth is.”

Molson Coors has made no secret of its desire to diversify. Its ‘Acceleration Plan’, first outlined in October 2023, set out intentions to “aggressively premiumise its portfolio” and “scale and expand in beyond beer” among its strategic priorities. Fever-Tree’s posh mixers, growing roster of adult soft drinks and non-alcoholic cocktails mean it “ticks the boxes on both of these initiatives”, notes Mundy.

Beer and soft drinks are also highly complementary in terms of production requirements, consumption locations and purchasing frequency. “You really do dovetail well,” Warrillow says of brewers and soft drinks suppliers. “Margins, the frequency of drops to accounts and consumption moments are all similar.”

Future takeover?

With Molson Coors now Fever-Tree’s second largest shareholder, the partnership “could even translate into a full takeover of the group in time if the arrangement works out well,” suggests Bell.

Warrillow, however, is keen to pour cold water on any such speculation. The ownership stake was structured into the deal “on our request”, he insists, while “conversations beyond that have never occurred”.

What’s more, the deal gives Molson Coors “no preferential rights, nor does it give them any ability to block anyone” from bidding to acquire Fever-Tree in the future, he reveals. “We’re not thinking about an exit,” he says. “We think there is an enormous amount of opportunity ahead.”