On a roll and still mixing it up: Big Interview with Fever Tree's co-founders

It’s been a full-on decade for Fever-Tree. Ten years since it first bottled a posh tonic, the business has taken perilous trips through dense jungles foraging for rare botanicals, been bombarded with calls from supermarket buyers who want to list their product, endured a rough ride through the often brutal world of private equity and enjoyed a highly successful flotation.

So you might imagine co-founders Charles Rolls and Tim Warrillow, who sit next to each other in a glass-fronted office in Chelsea and are laughing with each other when I arrive, could feel entitled to park their feet on the nearest table, pour themselves a large G&T, and toast the interim results for the first half of 2015, which saw sales shoot up 62% to £24.1m and the share price rocket.

Yet both men insist they have no plans to ease off. In fact, they believe they have only begun to scrape the surface of what is possible for the brand.

“Lots of companies start in the UK, focus on the UK, and then get to a saturation point,” says Rolls, a veteran of the gin industry. “Only then do they look at international expansion. But from day one, being global was a fundamental part of our core strategy. We still have some really big territories which are growing very fast.”

The UK remains its biggest market, but Fever-Tree is available in 53 countries and 70% of its sales are overseas. Rolls highlights the US as the one that currently offers the most potential, where the popularity of the Moscow Mule (a cocktail made with vodka, ginger beer and a twist of lime) means Fever-Tree’s ginger beer is every bit as popular as its tonic. “We have spent eight years in the US putting in the patchwork step by step,” says Rolls. “Now we are in a position where we can fast forward.”

Dangerous distractions

It took some tricky manoeuvring to get into this position, however. In 2013 Fever-Tree sold a 25% stake to fmcg-friendly private equity firm LDC, valuing the company at £48m. “We really did need private equity at that stage,” says Rolls. And though he is very clear that the experience was “overall very positive” there were some downsides. Like when LDC encouraged Fever-Tree to take on more debt.

“It’s just financial gearing,” explains Rolls. “They wind you up to the pips to make you squeak and they don’t care, because they have got all the money in the world. But if you go wrong because of a financial crash, your business may be sound, but miss one covenant and they can take what they want. So there are dangers with these highly geared private equity structures.”

They can also make you sell up, for example, which LDC did. “Distracting for everyone,” says Rolls. “Our sales slowed down for the first time. The week after we agreed to go public our sales took off again.”

And being listed has been “really good” for the business, says co-founder Tim Warrillow, with some understatement. Fever-Tree was listed on AIM in November 2014, after raising £93.3m in an IPO that valued the business at £154.4m. Following the interim results in July, shares flew up 9.9% to 318.6p - well over double the 134p IPO price. And at the time of writing they are priced at 469p, giving the business a market cap of a little over £540m.

Lemons

Passion for the product at Fever-Tree remains intense, and they are still working themselves up into a fever over arch-rival Schweppes, which acted as a major motivator to start Fever-Tree in the first place.

The story goes that Rolls, a former director of Plymouth Gin, lost patience with the use of “artificial saccharine” in Schweppes full-fat tonic because he believes the inclusion of the sweetener, which costs around 15% the price of sugar, makes all gins, whether cheap or premium, taste the same.

It’s a “sad reflection of what happens when a virtually monopolistic situation develops,” adds Rolls. “We decided to challenge that.”

Hence the launch of Fever-Tree, which proudly uses cane sugar in its tonic, and natural fruit sugars in its light version (which has 58% fewer calories than the regular version). He vows to keep using the best quality ingredients whatever the cost, whether it’s hand-picking chubby yellow lemons in Sicily or selecting not one, but a combination of three gingers for its ginger beer. And that devotion to the finest ingredients is paying off.

“Whenever we launch a new product, bartenders say: ‘Of course we will take it, everything Fever-Tree produces is delicious’. That’s a great position to be in, because they are the first line of consumers, as well as great advocates for the next line of consumers, their customers.”

As you would expect, the success of Fever-Tree has prompted Schweppes to respond. It introduced a new 4x200ml glass format in May and charged a premium despite using the same ingredients - another example, says Rolls, of the “cheap tricks” employed by Coca-Cola Enterprises, which owns the Schweppes brand in Europe.

So the pair allowed themselves a moment of satisfaction when CCE fell out with Tesco in March and the retailer swept Schweppes tonic off the shelves for a few weeks.

“When a really big supplier and a really big buyer go head to head, sparks fly,” says Rolls. “We did very well when Schweppes was taken off the shelves by Tesco.”

“It certainly helped us,” adds Warrillow. “Our great frustration was that there wasn’t more stock brought in and spread across those gaps. Long may the spat continue. It couldn’t happen to a nicer group…”

Pre-mixed

Meanwhile, relations between Fever-Tree and retailers have never been sweeter. It recently won its first listings in Morrisons, completing the set. Co-op Group distribution has also “broadened considerably recently” and it’s “steadily finding our way into other small store formats,” says Warrillow. Online is also “quick”.

“Sales via Ocado are growing very fast and we know we overindex online with the other retailers,” adds Rolls. Indeed, with Amazon business in the US growing rapidly “we are finally getting listed with Amazon in the UK”.

Some say Fever-Tree is a rip-off, but the reality is that such arguments are rendered redundant by its ongoing success. Averaging 32p per litre across retail, it’s three times the price of Schweppes. But those soaring sales proves that people are happy to pay a premium for a quality mixer, says Rolls.

“We have spent 10 years getting people to stop and think about mixers. Our latest campaign says ‘if three-quarters of your gin & tonic is the tonic, make sure you use the best’. And it is encouraging that people are now understanding that.”

As for the product range, it looks fairly settled for now, with 10 products - though a move into cans has seen Fever-Tree secure a deal to supply British Airways.

And with so many co-branding promotional tie-ups with the likes of Tanqueray, what are the chances of a pre-mixed can?

“We have had lots of approaches,” says Warrillow. “Of course it could happen, and we are in discussions with several brands. We think there is an opportunity there for range extensions.”

“We are restless entrepreneurs,” adds Rolls. “So we are always looking for the next exciting avenue to take the Fever-Tree banner to the consumer. And we still have a very long way to go.”