That’s according to analysts Nicola Mallard and Gideon Adler, from Investec Securities, who served this warning in a note, despite referencing Britvic’s leadership in the UK’s ₤200m (€250m) take-home squash category, where Robinsons has a market share of around 32%, above Ribena at 12.5%.
Despite Britvic management’s conviction that the firm (2011 turnover: €1.29bn) was “significant headroom” in the squash (cordials) category and opportunities to gain market share, Investec said the firm’s ‘double concentrate’ case study showed the growth problems Robinsons faced.
At an investor seminar in March 2011, Mallard and Adler said, Britvic management said they had high UK hopes for Ribena double concentrate, citing successful past ‘product concentration’ launches in own label soft drinks and washing powders.
Value operators sneak in
Resultant 64% value growth and 35% volume growth for the double concentrate in 2011 (Kantar Worldpanel), seemed to vindicate this faith, but Investec noted that the bulk of growth was generated by own label products, with “the same reduced servings opportunity, but at a lower price”.
“Indeed, according to Symphony IRI data…supermarket own-label lines account for 68% of the value and 79% of the volume sales, while Robinsons actually declined in net sales in 2011.
“As such, Britvic provided kudos and investment behind the double concentrate category, only to see smaller scale value operators steal market share,” Mallard and Adler added.
Within the UK squashes and cordials category for the 52 weeks to February 18 2012, Robinsons sales fell 0.5% to ₤205.4m, while own label sales rose 5% to ₤135m; Ribena sales fell 0.6% to ₤57.7m while Vimto was the real winner – up 13.6% to ₤29.5m.
Discussing Britvic’s interim results in March, Investec said the board confessed that it had mismanaged the double concentrate launch, with timing out of kilter with launches and consumers struggling to understand the concept of a smaller bottle for a higher price.
Although management claimed that the latest Nielsen data showed Robinsons had taken share in the double concentrate category – urging it was only fair to review the brand’s performance review at the summer’s end – Invest said its case study showed the challenge of growing top, mature brands.
Fundamentally distressed business?
Some investors viewed Britvic as a “fundamentally distressed” business due to own label squash competition, a declining UK on-trade channel and struggling Irish business, Mallard and Adler added.
But reaffirming their ‘buy’ rating, the analysts said Britvic offered material exposure to growth categories in UK soft drinks and had a good track record of driving top line growth via innovation, while it was also moving its French business from private label to serve a European impulse market.
“More compelling is the opportunity to build what is currently an immaterial, but highly ambitious, franchise model in the US, and ultimately globally, through a Fruit Shoot concentrate model,” they said.
“Britvic are slowly building the infrastructure to support this ambition, which plainly could be transformational to the medium term earnings horizon,” they added.