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Is Britvic on to a winner in iced coffee with Jimmy’s?

Published in The Grocer

Cold coffee is hot property. That much was backed up by Britvic’s move last week for challenger brand Jimmy’s Iced Coffee.

It’s a rare acquisition for the drinks giant, which is typically restrained in its M&A dealings. This is only its second major purchase in more than a decade – the last was in 2021, when it snapped up Plenish to bolster its plant-based credentials.

Typically, Britvic has preferred to incubate and launch its own – like in 2016, when it launched mixer brand The London Essence Company.

But on this occasion, “looking at the way the market was laying down with big players like Costa and Starbucks”, a buyout was the only way, says Russell Goldman, Britvic MD for breakthrough brands.

“We didn’t feel the best route in was through developing our own proposition,” he says.

And Jimmy’s was an obvious target. “Jimmy’s was taking a nice share position as a growing independent,” Goldman adds. “It was probably the only viable proposition for us to acquire, so when the opportunity came we jumped on it.”

The rationale behind the purchase feels similar to that of Plenish. Both purchases fill obvious gaps in Britvic’s portfolio – a key draw as it looks to play in “as many subcategories within soft drinks” as possible.

And both are fast-growing startups within expanding categories. Britvic says Jimmy’s is the fastest-growing brand in the UK’s buoyant £280m RTD coffee market [Circana 52 w/e 22 April], while it described Plenish in 2021 as “one of the fastest growing plant-based milks” in the UK, without providing figures.

Admittedly, that is from a relatively low base compared to the market leader. Jimmy’s grew its retail sales 43% to £17m in the year to June. That’s a way off from the biggest iced coffee brand Starbucks, worth £122m [NIQ 52 w/e 28 January].

But the Robinsons brand owner has high hopes in the potential to scale Jimmy’s through impulse and convenience channels, and hasn’t ruled out a move into the discounters, where Aldi and Lidl’s Cowbelle and Milbona brands have been in strong growth.

“That’s not something that we’re afraid of if the proposition is right,” Goldman says. “We’re not going to go in there and do anything that would harm the value of the brand but we’ll keep that under review.”

Jimmy’s sustainability and health credentials were also key attractions. Goldman cites the brand’s B Corp certification and compliance with HFSS rules.

For Shaun Browne, MD at investment bank Houlihan Lokey, it makes sense Britvic is looking to diversify – especially in light of the challenges facing soft drinks.

“Whether it’s health connotations or the recent WHO pronouncements on aspartame, carbonated soft drinks have some challenges to face over the next decade,” he says.

“So whether you’re Coke or Pepsi or Britvic, you’re looking at all categories of soft drinks, including water, mixers, iced coffee, cordials and juices, to work out which are going to be the growth engines.”

There are some issues. Britvic has no dairy manufacturing capabilities, which means it will have to rely on third-party production. That may constrain profitability in the short-to-medium term.

However, given Jimmy’s – unlike many other challenger brands – is already turning a profit, this shouldn’t be too big a concern.

Innovations on pack size, product development and a marketing push are all also on the agenda as the brand looks to increase penetration under Britvic’s guidance.

And bar Starbucks, the market is relatively open.

“Jimmy’s isn’t that far behind Costa,” adds Goldman. Indeed, Costa was worth £20.8m last year [NIQ 52 w/e 28 January 2023]. “With Britvic’s scale, I’d like to think we can really give it a good run for its money.”

Promotional debate

One area of debate will be how Jimmy’s positions itself in this increasingly competitive and promotion-driven category. According to analysis of Assosia data by The Grocer, the number of products in iced coffee grew by 33% in the year to 31 July 2023, while promotions increased by 60%.

Jimmy’s has had little choice but to participate in promotions – and is part of the Tesco meal deal. However, it has remained vigilant to the threat posed by deep discounts to brand equity, according to co-founder Jim Cregan.

“As soon as you’re in soft drinks you have to be in part of the meal deal,” he says. “Depending on different retailers, we will do shallow promotions and sometimes we will do some deep cut deep cut promotions, but we will never do as deep as the competition.

“It’s going to be interesting to see how the category pans out because a couple of the big players are doing quite a lot of deep-cut promotions. We believe our brand equity is so high that we don’t want to strip value out of the category.”

At the same time, Britvic is open to running promotional activity to drive trial.

“Relative to other categories, the level of discount is significantly lower,” Goldman says. “In the latest 12 weeks, the average promotional discount in iced coffee was around 12%. In comparison, cola – the biggest segment within soft drinks – was 30%.

“There’s loads of headroom, and promotions will help recruit new consumers and drive penetration, which is around 17% at the moment.”

Either way, the established brand, high growth rate and strong credentials of Jimmy’s have all the makings of a strong acquisition for Britvic – one that is tapping a new market.