Tonic water adapts and thrives

Players big and small are benefiting from a rise in demand for premium products in this mixer category.

The tonic water market has changed dramatically in the 21st century. Until 2005, when Fever-Tree launched its first product, the sector had been dominated by a couple of high volume, less premium brands. FeverTree created a new premium market which consumers didn’t know they wanted and, less than 20 years later, there are hundreds of premium tonic water brands fighting for elbow room in a continuously growing market space.

According to a new report by Allied Market Research, the global tonic market was valued at $805.4m in 2019, and is projected to reach $1.2bn by 2027, with a CAGR of 7.3% from 2021-2027. The report says that the rising demand for premium tonic water is due to a change in consumer tastes, a rise in standards of living globally and an inclination toward innovative products.

The market is also expected to see a boost in brands using organic, natural and authentic ingredients. Consumer consciousness about the ethics behind a brand, as well as concern about what they’re putting into their own bodies, are among the biggest influences on the tonic water market right now.

Fever-Tree is leading by example on this front having launched various initiatives and blueprints to reduce its carbon footprint, battle malaria, reduce waste and increase biodiversity. All the things that consumers want, as well as a variety of slimline tonics made with premium ingredients. Lots of boxes ticked for the multinational, yet a combination of factors saw its share price drop over the past year. 

According to a report by Opto, on September 9 Fever-Tree’s shares had dropped 65% since the beginning of the year, with the main factor being inflation, which has reduced the brand’s profit margins. However, the company’s July trading update highlighted that, despite the impact of the cost of living crisis, consumers are continuing to use Fever-Tree products.

The report also suggests that, while manufacturing, labour and material costs are all increasing, Fever-Tree still expects a full-year revenue of £355- 365m, representing a 25% increase year on year. Clearly the big players won’t be as affected by inflation and the cost of living as others further down the food chain.

At the other end of the spectrum is UK premium mixer brand Lixir, which launched in 2018 under a crowdfunding scheme. The brand was created by former bartenders Matt Mahatme and Jordan Palmer, who wanted to create a tonic with natural ingredients, less sugar and more flavour, while dialling down the quinine levels across the board.

“We felt that lots of tonics used too much quinine, which brought bitterness, so we brought this down to let the other ingredients have more presence,” Palmer says. 

Lixir tonic


Once again Lixir is ticking boxes for consumers. It uses less sugar, fewer calories and nothing artificial – and on top of that, it has invested in both environmental and human sustainability. The brand donated its surplus stock from lockdowns to UK-based food charity Feeding Families, while partnering with water charity Just A Drop in 2021. On top of that, Lixir is certified carbon neutral and offsets its emissions through various tree-planting initiatives from Madagascar to Nicaragua. For a company which is just four years old to have a sustainability report shows just how engaged it is with the demands from its target audience, but it’s been far from plain sailing.

Palmer says: “First we were dealing with Brexit and the supply issues, then the pandemic hit and now there’s a cost of living crisis. We’ve just had to be adaptable and react to whatever came our way.” 

Despite the challenges, Lixir has a strong distribution deal with Molson Coors throughout the UK, with plans to go further afield, and earlier this year received a £1.1m investment from a consortium including ex-commercial director at Pernod Ricard Chris Ellis. 

“After making it through a challenging couple of years, this new investment will allow us to really scale the brand – for us that looks like investing in new team members and activating the brand to reach as many new consumers as possible.”

Ellis adds: “Closing the latest round of fundraising is a fantastic achievement for Matt and Jordan. The business is now set to catapult into the next stage of its development as we work towards building further in the on-trade and growing into new market segments in the UK and export markets. An exciting time for the whole team.” 

From the major payers to relative newbies, the tonic water market is pushing on. Inflation rates and the cost of living crisis don’t appear to be harming revenue streams for the likes of Fever-Tree, while confidence in younger brands from investors suggests we’re likely to see more producers cash in on the growing demand for premium mixers. They just need to account for a reduced profit margin over the coming years as everything continues to get more expensive.