UK Stock Story - Britvic
As we enjoy (or endure) the summer weather, lots of us will be reaching into the fridge at home or in a shop for a soft drink to help us cool down and we might well pull out a Britvic product.
Based in Hemel Hempstead, Britvic PLC traces its roots back to the mid-19th century when the British Vitamin Products Company was formed. The roots of the business were in soft drinks, including lemonades, mineral waters, tonics and non-alcoholic ales. In the late 1930s, the company developed a means of bottling fruit juices so that they stayed fresh and in 1949 the Britvic brand was launched[1]. In recent decades, the company has grown through buying other drinks brands as well as being granted the UK franchises for Pepsi and 7UP.
These days, Britvic is the UK’s largest supplier of branded still soft drinks and the number two supplier of branded carbonated soft drinks[2]. The company divides its main business between so-called “take-home” purchases, covering supermarkets and local shops and "on-premise" consumption in restaurants, pubs, hotels and cinemas. The company also has operations in Ireland, France and Brazil and has annual revenues of more than £1.4 billion[3]. Many Britvic brands - either those directly owned by the company or where they have UK distribution rights - are household names and include: 7UP, Ballygowan, Britvic 55, J2O, Gatorade, Lipton iced tea, Pepsi, Purdey's, Robinsons, London Essence, Fruit Shoot and Tango. Britvic now has more than 35 drinks brands selling in over 100 countries[4].
Soft drinks are a consumer staple, so sales are consistent, stable and projected to grow steadily. We own Britvic shares in our CFP Castlefield Sustainable UK Opportunities Fund because we think that the company can continue to generate good investment returns through increasing consumption of soft drinks by innovating to meet ever-changing consumer needs, accessing new markets and offering more premium products.
Grocery retailing, especially in the sophisticated UK market, is extremely fast-moving, with new legislation and new consumer trends constantly emerging. Over the last two or three pandemic-blighted years, new consumer trends such as online shopping and patterns of consumption – perhaps due to more people working from home - have emerged. Also, consumers are seeking out healthier products, such as lower sugar drinks and fruit-flavoured water and concentrates, including top-selling products in Brazil such as coconut water and the Teissiere brand in France.
Britvic is adapting well both to new regulatory imperatives and to pressure from consumers to become ever more sustainable. The main sustainability priorities for Britvic are plastic packaging and sugar reduction, with other areas such as water use, supply chains and carbon reduction also part of their thinking[5]. In packaging, the aim is to move “beyond plastic” and the company is working towards increasing the recycled plastic (rPET) content in its bottles. To help make this happen, Britvic provided £5m of investment support for the construction of new rPET manufacturing facilities at Esterform's site in Yorkshire, to secure a long-term supply of UK sourced recycled plastic[6]. Fans of Robinsons squash, like me, will enjoy Robinsons Benefit Drops; these are highly concentrated squash formats fortified with vitamins which help cut plastic use. In bars and clubs, London Essence Fresh Serve offers premium tonic water on dispense – incorporating patented micro-dosing technology and virtually eliminating product packaging.
Soft drinks producers have faced several challenges in the past few years. On top of macro factors such as the pandemic and the conflict in Ukraine, there was the Soft Drinks Industry Levy, or “Sugar Tax,” which was introduced in 2018 and led to the reformulation of many drinks, although most Britvic products were unaffected by the rules.
Britvic believe that there will always be customers who prefer full sugar drinks, but they acknowledge that obesity is on this rise in the developed world and excessive consumption of sugary drinks contributes to the problem. To help tackle the issue, Britvic has reformulated many of its drinks while preserving taste and quality and, for many years, they have set annual targets for, amongst many other factors, sugar reduction - with a 2025 target of less than 30 calories per standard serving[7].
In October this year, new HFSS (High Fat, Sugar, Salt) regulations come into effect. This new legislation is designed to reduce the availability of products high in fat, salt and sugar (HFSS) bought through “volume promotions” like BOGOFs[8] and will restrict the placement of HFSS product categories in high footfall zones like checkouts, store entrances, and designated queueing areas to reduce the scope for impulse purchases of less healthy items. To ensure compliance with this new legislation, Britvic reformulated its core range of Rockstar Energy drinks[9].
The latest government initiative is the Deposit Return Scheme or DRS, which is intended to increase the recycling rate of drinks containers (cans and bottles) and help reduce littering[10]. After a pandemic-induced delay, this initiative is being trialled first in Scotland from Summer 2023.
As Thoughtful Investors, we are drawn to the company’s “Healthier People, Healthier Planet” ethos which fits with our own commitment to Share Action’s Healthy Markets Initiative[11]. This project seeks to improve children’s health by increasing access to affordable, healthy food. We are impressed at the way the company has embraced sustainability and shown great resilience over the past few years while providing consumers with a fantastic range of soft drinks.
Information is accurate as at 25.07.2022. Opinions constitute the fund manager’s judgement as of this date and are subject to change without warning. The officers, employees and agents of CIP may have positions in any securities mentioned herein. This material may not be distributed, published or reproduced in whole or in part. With investment, capital is at risk.
[1] https://www.referenceforbusiness.com/history/Be-C/Britannia-Soft-Drinks-Ltd-Britvic.html
[2] https://www.beveragedaily.com/Article/2018/07/24/Britvic-fights-sugar-tax-and-CO2-challenges
[3] https://www.britvic.com/investors/financial-performance/
[4] https://www.britvic.com/about-us/who-we-are/our-history/
[5] https://www.britvic.com/sustainability/our-approach-to-sustainability/materiality/
[6] https://www.britvic.com/sustainability/our-approach-to-sustainability/materiality/
[7] https://www.britvic.com/sustainability/our-approach-to-sustainability/materiality/
[8] https://www.acs.org.uk/advice/hfss-regulations
[9] https://www.thegrocer.co.uk/soft-drinks/rockstar-energy-drink-core-range-reformulated-to-meet-hfss-regulations/664907.article
[10] https://www.gov.uk/government/consultations/introducing-a-deposit-return-scheme-drs-for-drinks-containers-bottles-and-cans/outcome/introducing-a-deposit-return-scheme-drs-in-england-wales-and-northern-ireland-executive-summary-and-next-steps
[11] https://shareaction.org/investor-initiatives/healthy-markets-initiative