Just the tonic

It’s reputedly the UK’s fastest growing soft drink and its pairing with the cool kid of craft – gin – has done it no harm whatsoever. So why is the drink that makes up three quarters of a G&T such a hard sell Stateside?

Some say the gun dispenser is a barrier to tonic’s success, whereas others say it’s just a case of time and education. Right now, US tonic sales are on the increase.  

“The US market continues to grow strongly and of course the very nature of the scale of the market suggests huge potential,” says John Moreira, Fever-Tree international director.

Since it first appeared on the tonic market in 2005, Fever-Tree has fizzed up the category and its share price has more than doubled. “We have played a huge part in reinvigorating the category for both consumers and the trade,” Moreira says – and it’s hard to disagree. When the premium tonic – today available in 150 markets – had the London stock market aflutter last November, co-founder Tim Warillow said the brand was “doing well in Europe and finding its feet in the US”. It’s certainly done that, reporting 69% growth in US sales in the first six months of 2015. 

“Tonic has demonstrated strong growth to date,” the international director says. “Naturally we expect tonic to continue to grow as the fundamental trends of premiumisation and mixability develop.”

The company’s recent deal to supply its tonic water in aluminium cans on British Airways flights will only increase its appeal and audience as it hopes to capitalise on the 2.2m G&Ts served on board BA flights last year.

The US tonic market is not just a sweet spot for Fever-Tree, as the category has reported growth for the past five years. Last year sales of tonic water in the US increased in volume and value in the off-trade by 8% and 9% respectively, according to Euromonitor International.

“The US tonic market continues to display strong growth,” says Fentimans marketing manager Andrew Jackson. “There are more natural mixers than there ever have been before.” According to Jackson, the most predominately used tonics in the natural, premium realm are Fentimans, Fever-Tree and Q.

“Middle America is still pretty cost conscious and uses the traditional tonic on a gun. Most bars using premium tonic have it on the menu yet serve it from behind the bar,” Jackson says

Like the majority of premium spirits brands, Fever-Tree has focused its launch on the coasts in the US. Moreira says: “We have actively targeted those consumers who demand – and deserve – better tasting mixed drinks”.

“The structure of the US market is similar to much of the world in that it is dominated by mainstream mixers and the dreaded gun dispenser in the on-trade. This despite genuine consumer demand and brand call for premium spirits and a fantastic quality of bars,” Moreira says.

The targeted approach appears to be working. He adds: “Encouragingly, as our message has spread we have secured distribution across the country, with all states in growth.”

Sam Chandler, international brand manager for Greenall’s Gin, says keeping consumers interested is the biggest challenge in the tonic category.

“The incredible growth of the category has been fuelled by a reassessment of the benefits tonic can bring to your drinks and a deeper understanding of the botanicals and flavour profiles, much like gin.

“Consumers now understand this and are settling on favourite brands as well as opening their minds to new flavours. Continued innovation – in the form of entrants such as Bermondsey Tonic Syrup, formulated to complement gin – and continued consumer education will be absolutely necessary to maintain growth.”

Consumer understanding on price and premium is also a big challenge for the category.

Jordan Silbert, Q Drinks founder and CEO, says the fault lies with producers offering what they claim to be (and price as) premium tonic water and the product not being any good. “That turns the consumer off and makes them think that premium tonic water is some marketing ploy rather than a way to improve their drink.”

The way to prevent this, it is widely agreed, is to build awareness and educate consumers. But this is sometimes easier said than done.

Capi owner Pitzy Folk says: “It’s a challenge to build awareness that preservatives and chemicals in mixing have a negative effect on your gin and tonic.

“A synthetic tonic is laden with artificial ingredients and will overpower your gin, rather than a natural tonic that will complement your gin of choice. If you’re investing in a premium bottle of gin you want to be able to taste the true profile and nuances with a pure, clean tonic water.”

COCKTAIL CULTURE

Cocktail culture – mainly through the G&T and Moscow Mule – has only strengthened the demand for premium tonics.

“Super-premium gin has demonstrated double-digit growth in the past few years and there has been an increasing number of fast-growing new entrants in the category,” Fever-Tree’s Moreira says.

“There are many echoes of the dynamism we have seen in Europe. The rise of the Moscow Mule has been the real headline from the US and for Fever-Tree this has meant our Ginger Beer grew by more than 90% last year and is now our biggest product in that market.”

With an increasing number of new entrants comes the question of whether the market is nearing saturation point.

For Q Drinks’ Silbert the answer is no, at least in the US. He says: “In the US more than 50% of spirits by dollar volume are premium and premium-plus. But less than 1% of tonic waters are premium (Fever-Tree) or premium-plus (Q Tonic). That doesn’t make sense given that the vast majority of a gin and tonic is the tonic, not the spirit.”

Moreira concurs: “If you compare the percentage of premium penetration of mixers with other categories, it is clear we still have a huge opportunity. This, together with the accelerating trend of mixability across many spirit categories, gives us great optimism for the future.”

Fentimans’ Jackson is more cautious and says saturation point is a danger.  But he adds that brands with a compelling story to tell, which consumers trust, will continue to keep the interest of increasingly savvy consumers. “Brands that are hollow, with an artificial back story, will struggle to compete and maintain their premium status,” he says.

Since appointing a dedicated export team, the UK-based company has seen turnover grow by almost a third to nearly £10m and its oversea territories swell from eight to 42. Currently, one third of its revenue is export driven.

“Our biggest market is our home market in the UK,” Jackson says. “We are strong in the UK because of our heritage.”

That heritage and back story have helped the brand in export markets as well. “Unlike many newcomers to the category, we have been producing premium drinks in the UK since 1905. Fentimans’ British heritage and eccentricity has helped our brand grow rapidly in overseas markets, including the US, Belgium and Austria.”

FLAVOURS

A good story may be important, but flavours are also often a great way of recruiting new followers to a category. Europe is currently leading the way with sales of flavoured tonics, but that’s not to say the US isn’t getting a taste for them. 

“As the tonic category continues to develop, we expect to see the introduction of more innovative flavours and colour to stimulate consumer interest,” Fentimans’ Jackson says.

“Flavoured tonic is most popular in bars, where craft is king, and bars and restaurants prefer quality over the bottom line,” he says. Flavours are currently more popular in the major cities on the eastern and western seaboard, where customers are conscious of what they are eating and drinking. But Jackson says there are growing markets of this type all over the country in hipper communities where craft and flavour are appreciated.

Flavour is great at hooking consumers and crucial to keeping them for a lot of drinks producers. Tonic is no different, according to Jackson. “The biggest challenge in this category is keeping consumers interested. Tonic water is essentially a simple liquid and without future innovation the challenge will be to keep consumers engaged and loyal to tonic. New flavour and blurring of the boundaries of what defines tonic water will help with this quest.”

For Fever-Tree, flavoured tonics must be assessed on a region-by-region basis. “It very much varies by region and market,” says Moreira. “Fever-Tree Mediterranean is our longest established flavoured tonic and in markets such as Columbia and Belgium we have equal sales of our Indian and Mediterranean tonics. We see real success with the flavoured tonics when they are well explained to consumers by trained bartenders and clear gin and tonic menus that can showcase the range and pairings.”

Only time will tell if flavoured offerings, cocktails and education will thwart the mighty gun dispenser and convert US consumers and trade to giving the T three-quarters the amount of consideration and kudos of the G.