Fever-Tree loses its fizz as cool start to summer knocks back sales

A cool start to the summer, rising competition and a slowdown in the gin trend have knocked the fizz out of Fever-Tree Drinks which posted a worse than expected slowdown in UK sales.

Shares in the tonic water maker dived more than 10% on Tuesday, wiping more than £300m off the company’s value, as it said poor weather in the three months to 30 June had dampened growth rates.”

Fever-Tree has been a strong stock market performer since its float in 2014 – creating a £2.4bn business that has made multimillion pound fortunes for co-founders Tim Warrilow and Charles Rolls – but its shares have retreated nearly 50% since their peak last year.

The latest share decline came as Fever-Tree said UK sales rose 5% in the six months to 30 June, compared to 8% expected by analysts. Total sales rose 13%, versus a hoped-for 15%, as underlying profits for the whole group rose by 8% to £36.7m.

Analysts said Fever-Tree was battling against a major promotion by rival Schweppes as well as a general slowdown in the drinks trade compared to last year’s hot summer.

Warrillow, Fever-Tree’s chief executive, said the industry had faced an “exceptionally tough” period compared to last year when the hot weather combined with the royal wedding and football World Cup to create a thirsty backdrop for G&T drinkers. Warrilow and Rolls founded Fever-Tree in 2005, naming it after the colloquial term for the cinchona tree, the bark of which produces quinine – a key ingredient in tonic water.

The British gin revival has also lost momentum, although Fever-Tree said it was still growing by more than 10% albeit in comparison with growth of more than 50% last year.

The company’s slowdown comes after Irn Bru maker AG Barr issued a profits warning last week as it said it expected sales to drop 10% this year because of the cooler weather and a recipe change prompted by the sugar tax.

Russ Mould, investment director at stockbroker AJ Bell, said first half sales growth of 24% in the US was an important counterpoint to trading in Fever-Tree’s domestic market. “Fever-Tree’s poor UK growth was not disaster territory as the company’s future growth is arguably dependent on cracking the US market – and progress here is good,” he said.

“Ultimately Fever-Tree has become a victim of its own success. Soaring growth rates in recent years have raised expectations for its performance and failure to deliver anything but superior rates leaves it open to fierce criticism.”

Other analysts suggested that Fever-Tree was finding it harder to find new outlets in bars, pubs and supermarkets in the UK where it now controls 45% of the on trade – the industry term for bars, restaurants and pubs – by value.

Warrillow said the company expected to meet its profits targets despite the summer slowdown. “We don’t think anything underlying has changed. That’s why we’re optimistic that in second half [of the year] we can return to double-digit growth in the UK,” he said.