In 2004 Fever-Tree exploited a gap in the drinks market that seems obvious in hindsight: the need for top-quality tonic to mix with top-quality gin. It’s become the toast of its investors in the process. By Pip Brooking.
'I still don't think the government understands small business. You're really in a vacuum'
- Tim Warrillow, co-founder, Fever-Tree
As I enter the Chelsea HQ of high-end mixer-drinks company Fever-Tree, I’m offered a G&T.
It’s tempting – after all, the firm has successfully seized on the growing market for premium spirits by making mixers that don’t mask their flavour. But I settle for a Sicilian lemonade and a thimbleful of ginger ale.
The lemonade is made using oil from lemons grown on the side of Mount Etna. This is extracted using sfumatrice equipment, which is more typically used by the perfume industry.
There are three types of ginger in the ale, all sourced by the company’s co-founder, Charles Rolls, from India, Nigeria and the Ivory Coast.
And the quinine for the tonic that started it all was found by his business partner, Tim Warrillow, in the notoriously dangerous region on the border of Rwanda and the Democratic Republic of the Congo. This shows the lengths the pair will go to in order to find the best ingredients.
“The plantation there has such a high-quality product that it has the pharmaceutical industry as a customer. We’re the only drinks company buying from it,” Warrillow says.
Their focus on quality helped the firm to find a market for 500,000 bottles of tonic in its first full year of trading and break even in 18 months, despite having no marketing budget.
This year it’s planning to produce 59 million bottles (up from 43.5 million in 2012) and turn over £22m (from £16.2m).
Its now nine-strong range of mixers is available in 38 countries and at seven of the world’s top ten restaurants, as rated by Restaurant magazine.
The key factor behind the company’s rapid rise is that it was the first in its industry to act on what now seems like an obvious idea.
First wine-makers and brewers and then distillers had responded to the fact that alcohol consumers were drinking less, yet caring more about quality.
But, when he was managing director of Plymouth Gin in the early 2000s, Rolls was frustrated by the overpowering taste of the mixers on the market at the time.
“Fever-Tree is based on the idea that three-quarters of your drink is the mixer, so you’d better ensure that that’s good,” he says. “How can you think about mixing a great spirit with something that’s got saccharin and high-fructose corn syrup in it or with a ginger ale that doesn’t contain ginger?”
He joined up with Warrillow, whose background was in luxury food marketing, and applied the same techniques that the alcohol companies used for their premium products to mixers: focusing on the ingredients and the packaging while working with bartenders – the gatekeepers of many purchasing decisions – to encourage take-up.
“The spirit companies were quite quick to say that they couldn’t believe they hadn’t really focused on this area before,” says Warrillow, who adds that 95 per cent of drinkers participating in a taste test run by Diageo preferred its Tanqueray gin with Fever-Tree tonic over the leading competitor.
Building support among distillers was a key part of Fever-Tree’s plan to grow by developing further mixers for different spirits. But the company needed a major retail channel through which to drive volume sales – and its big break came in late 2005 when it was approached by Waitrose.
“Supermarkets can give you the volume you so desperately need as a small company to support your cash flow and get things moving,” Rolls says. “For all their faults, they do actually pay you.”
The Waitrose deal led to Fever-Tree’s first injection of private equity funding. Rolls contends that, despite constant complaints from business, “access to capital is pretty good in this country”.
He explains: “These guys aren’t stupid. If a private equity house can see you’ve got a really good idea, thought through your business plan and got some relevant experience, they’ll probably think you’re worth backing. Most people don’t have that.”
Warrillow emphasises that they have a good relationship with their investors. “We purposely chose to deal with people who were going to allow us to run the business. There isn’t the negative story that I often hear about of backers coming in and turning a business on its head.”
The same goes for their manufacturing partner, Brothers Drinks. “Finding the right partner was an early challenge. But, because our brand grew quickly, we managed to attract what we view as the best bottling partners in the country,” Warrillow says. “We work incredibly closely with them.”
Shaken and stirred
A bottle bought from Waitrose’s shelves also helped to kick-start Fever-Tree’s export growth, which had been a goal from day one.
Rolls and Warrillow had already visited the US and Spain – the biggest markets for premium spirits and G&T respectively – and found a distributor in the US.
But there was little interest in Spain until a bottle of tonic ended up in the hands of Ferran Adrià, then head chef at the renowned restaurant El Bulli. He created a sorbet from the drink as part of a tasting menu – and also helped Fever-Tree find the distributor they needed.
Exports now comprise about 75 per cent of its sales. Other key markets include Italy, Germany, Japan and Canada. But there are some countries where Rolls does not expect to see much success. “Everyone thinks we must have fantastic potential in the Brics.
But the Chinese have no idea what gin and tonic is; in India there are tariff barriers of 120 per cent; and in Brazil they like fernet, not G&T. Russia is the only one we should be in that we aren’t.”
That said, Warrillow believes that Fever-Tree has “only scratched the surface” of international growth so far. Rolls adds that there’s the opportunity to come up with more flavours, too.
The business has produced a “light” range, which uses fruit sugar rather than cane sugar, as an alternative to the diet varieties. It is also about to trial a cola, “because we’ve got spirit partners that really want us to”.
Fever-Tree’s success has inevitably fuelled competition. In Spain, for example, there are 12 rivals snapping at its heels. “But this illustrates our first- mover advantage. <
They’re having to come up with a point of differentiation when all that consumers want is a great product that allows them to taste their gin better,” Warrillow says. Weakness in the economy is also “shaking the competition out”, Rolls adds.
But, for all the confidence that the duo have gained from developing a strong yet simple idea, Rolls doesn’t have the same faith in the British government. “I still don’t think the government understands small businesses,” he says. “When you talk to the ministers who have responsibility for SME policy, you find that they have no background in this area. You’re really in a bit of a vacuum.”
Warrillow agrees that “more champions in government” are needed for companies such as Fever-Tree, especially as it’s taking something as “quintessentially British” as a high-class gin and tonic to the world.
Fever-Tree in brief>>
2005 - Fever-Tree clinches retail deal with Waitrose in its first full year of trading.
2006 - The business breaks even, securing private equity investments from London & Lochside.
2008 - Launches in Sainsbury’s and Tesco. Exports reach 15 markets.
2010 - Turnover reaches £6.7m.
2012 - Sells 43.5 million bottles in 38 nations.
2013 - Obtains £48m in funding from Lloyds Development Capital.