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Even DIY Cocktails Can't Help Brexit Blues

Andrea Felsted
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Even DIY Cocktails Can't Help Brexit Blues

(Bloomberg Opinion) -- In the malaise of Brexit, Brits have been drowning their sorrows in gin and tonic. And rather than do it themselves, they’ve continued to call on the local handyman, fondly referred to as the white van man, to fix their bathroom taps.

There were signs on Wednesday that that’s beginning to change.

Fevertree Drinks Plc, maker of what Tatler magazine dubbed the ultimate mixers, said sales would be lower than expected this year while British home-improvement retailer Kingfisher Plc, owner of B&Q chain, said its third quarter was disappointing. Sales are even slowing at the previously fast-growing Screwfix, which primarily serves building professionals such as plumbers.

They are not the only ones to bemoan the state of the British consumer.

Both online appliance and electronics retailer AO World Plc and clothing and food stalwart Marks & Spencer Group Plc have cautioned that shoppers are behaving as if they are in a recession, despite wage growth running ahead of inflation and strong employment.

For Fevertree, which rode the cocktail craze, the about turn has been particularly abrupt. Its shares reached an all-time high of almost 40 pounds in October last year on back of the gin boom. Up until this year, this had prompted the group to repeatedly increase its sales and profit forecasts.

But fears have been mounting that we have reached “peak gin” with the shares almost halving from their high to about 21 pounds.

Brits are still drinking when they go out to bars and clubs, but they’re not filling their shopping carts with the making for DIY cocktails. Part of the weakness is due to the comparison with summer 2018, when Britain was basking in a heatwave and enjoying a boost from England’s ride to the semi-finals of the World Cup soccer tournament.

But it also reflects a more cautious consumer. With fewer reasons this year for a drink at home, more careful Brits don’t need as many mixers. And when they do have a tipple, they may choose a cheaper option than a pricey one made by Fevertree. That is not helped by increased competition such as a new premium mixer range from Schweppes, nor a general tendency by grocers to offer more promotions and discounts.

Trading at Britain’s supermarkets has been subdued. While clothing retailers may have seen some revival in demand thanks to much colder weather than a year ago, that hasn’t been the case at the grocers. Supermarket sales were sluggish in October, according to data provider Kantar.

Much will now depend on the crucial Christmas trading period. This year looks particularly challenging, given the uncertainty surrounding Brexit and the forthcoming general election, scheduled smack dab at the height of the holiday shopping season.

As for Fevertree, with the slowdown in the U.K., it is under more pressure to develop its business in the U.S. The company forecasts that sales there will rise 34% this year. With the U.K. still accounting for about half of group revenue, clearly this is not enough to offset the domestic weakness.

Even with the sell-off over the past 12 months, the shares still trade on a forward price-earnings ratio of over 30, an about 50% premium to the Bloomberg Intelligence global valuation peer group. Fevertree sees the slow-down in its home market as a short-term blip. But with such a fizzy valuation, there’s not much scope for further disappointment.

It could be a dry January in more ways than one.

To contact the author of this story: Andrea Felsted at afelsted@bloomberg.net

To contact the editor responsible for this story: Melissa Pozsgay at mpozsgay@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Andrea Felsted is a Bloomberg Opinion columnist covering the consumer and retail industries. She previously worked at the Financial Times.

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