The strong, quiet type

Britvic may not make as much noise as its rivals, but it looks set to find favour with the City as it floats.

To those outside the soft-drinks industry, Britvic might appear a sleepy backwater compared with glitzy Coca-Cola, the world's most valuable brand.

But as the UK's second-biggest soft-drinks manufacturer prepares to float on the London Stock Exchange this month, it is recognised that it is more than just the distributor of Tango and Pepsi, with a much broader portfolio of beverages than its US rival.

Analysts say the valuation of Britvic at about £800m reflects its balanced portfolio. The flotation has received a broadly favourable response from the City, despite a slump in sales of the flagship Tango brand, which is set for a relaunch following an 11.7% fall in market share between 2000 and 2004 (Marketing, 16 November).

A key reason for the optimism is the group's diversified product offering: the market for fizzy drinks may be flat, but almost half of Britvic's products are still, leaving the company less exposed to the declining market for carbonated drinks.

Britvic's major shareholders are InterContinental Hotels (47.5%), Whitbread (23.7%), Pernod Ricard (23.7%) and PepsiCo (5%). It has an agreement to produce, market and distribute PepsiCo drinks in the UK, including Pepsi and 7UP, and also has first refusal on new PepsiCo drink brands. The deal was extended for a further 15 years in 2004.

Value breakdown

The group is the biggest player in the still-drinks market, with its Robinsons brand worth £185m a year in the take-home market, according to ACNielsen. New products Fruit Shoot and J2O have added £72m and £33m a year respectively in take-home sales. According to Britvic, 28% of its revenue comes from new brands or brand extensions launched in the past eight years.

The group also has a significant stake in the UK's carbonated-drinks market, where it is number two to Coca-Cola. Pepsi is its biggest brand, with an annual take-home value of £217m and on-trade sales of £450m, according to ACNielsen. Tango is its second-biggest brand, with a take-home value of £49m and on-trade sales of £12m.

Britvic has a vastly lower profile than Coca-Cola, whose recent campaign, showcasing the variety of its brands, confirmed the importance of a balanced offering. But according to John Band, consumer analyst at Datamonitor, Britvic is actually in better shape than its rival. 'In many ways, Britvic has been better at diversification than Coca-Cola and has a better mix of drinks, with strong brands in almost every category,' he says.

Euromonitor FMCG analyst Robert McFaull agrees. 'Coke has been slow off the mark in some areas,' he says. 'Britvic's Tropicana has been on the market for almost a decade, while Minute Maid has only just launched.'

It is expected that Britvic's portfolio will prove popular in the Square Mile.

As one hedge-fund manager explains: 'Food and drink companies with a large percentage of unhealthy products are reporting slimmer profits. Britvic is less exposed to this risk as it has a presence in almost every category, from fruit juices to water.'

Britvic has been late to enter some markets, most notably the sports-drink arena: PepsiCo's Gatorade brand has only just been launched in UK vending machines, despite a huge presence in the US (Marketing, 16 November).

However, the company has a solid record on new product development, which is becoming more important as the carbonated soft-drinks market stagnates.

It is poised to launch Drench, a brand of water targeting the youth market, for example. With a launch budget of £2m, the brand aims to make ripples in a market in which ad spending has typically been low.

Creative differentiation

Britvic category director Andrew Marsden claims the creative approach for Drench, developed by Clemmow Hornby Inge, will be very different from existing ads in the market. 'Water advertising has traditionally been based on provenance, with springs or traditional country scenes,' he says. 'We will be taking our branding skills from other markets into water.'

The strategy has proved successful in the past. The 'You know when you've been Tango'd' ads, created by HHCL, saw the soft drink borrow the irreverence and cheeky humour associated with lager ads.

With the multiples allocating more shelf space to water and the market growing rapidly, Britvic is in a solid position, and Marsden does not rule out expanding the Drench brand to incorporate flavoured waters; analysts agree it is only a matter of time before Coca-Cola launches a rival.

Steven Henry, chairman and creative director of HHCL/Red Cell, believes the group is also well placed to ensure existing brands such as Tango stay fresh. 'It is a flexible organisation and small enough to move faster than the bigger multinationals,' he explains.

While Britvic's flotation will undoubtedly consume management time as well as raise capital for investment, analysts believe it should put an end to speculation about its future ownership and provide the group with a platform for international growth.


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