Up to €1 trillion estimated brand value loss from COVID-19 globally
The brand value of the world’s 500 biggest companies, according to the Brand Finance Global 500 2020, is set to potentially lose up to an estimated €1 trillion as a result of the Coronavirus outbreak, with the aviation sector being the most affected.
Brand Finance has assessed the impact of COVID-19 based on the effect of the outbreak on enterprise value, as at 18th March 2020, compared to what it was on 1st January 2020. Based on this impact on business value, Brand Finance estimated the likely impact on brand value for each sector. Each sector has been classified into three categories – limited impact (0% brand value loss), moderate impact (up to 10% brand value loss) and heavily impacted (up to 20% brand value loss) - based on the severity of business value loss observed for the sector in the period between January 2020 and March 2020.
The Brand Finance Ireland 25 2020 ranking is accurate as at January 2020. Our COVID-19 impact analysis shows that the top 25 most valuable Irish brands could potentially lose up to 14% of brand value cumulatively, equalling a drop in total brand value from €20.4 billion to €17.5 billion.
Penneys/Primark claims top spot
Penneys/Primark has climbed two spots in the ranking to claim the title of Ireland’s most valuable brand for the first time, after recording a 9% rise in brand value to €2.4 billion. The budget clothing giant has overtaken Allied Irish Banks in 2nd position (brand value down 18% to €1.9 billion) and long-standing leader, Guinness (down 24% to €1.9 billion).
2019 marked a strong year for the retailer, with the brand celebrating 50 years in business. Penneys/Primark continued to defy the high street’s gloomy slow down with strong sales performances and consistent store openings throughout the year. The brand now boasts 370 stores, across 12 countries, including its new flagship store in Birmingham - its biggest store to date, employing 1000 people.
As of April 2020, however, Penneys/Primark has been forced to close all its stores globally, suppliers have been warned that no new orders will be processed, and executive staff’s pay has been cut by up to 50%. With the store closures expected to equate to a staggering €705 million monthly loss in net sales for the brand, the retailer certainly has a turbulent journey ahead.
Ultimately, recovery for Penneys/Primark, as with other brands in the Ireland 25 2020 ranking, depends on how long the COVID-19 crisis lasts, but as more parts of the globe become riddled with the virus, it seems like they are in the for long haul.
Despite Guinness being displaced from the top spot this year, the brand will hope that its continued sponsorship of the Six Nations and its popularity around the globe will enable it to reverse its fortunes in the coming year.
Simon Haigh, Managing Director, Brand Finance Ireland, commented:
“Congratulations to Penneys/Primark for taking the top spot in the Ireland 25 2020 ranking and being named Ireland’s most valuable brand. Only time will tell whether the retailer can hold on to this position in the long-term, however, following unprecedented times.
Despite having managed their way through the three and a half years of protracted Brexit uncertainty, the leading Irish brands are now facing even more uncertainty in 2020. It is anticipated that there will be a limited impact from the COVID-19 pandemic on the food brand owners, Glanbia and Kerry Group, in this year’s top 25 ranking, but the banking (AIB, Bank of Ireland, Ulster Bank), apparel (Penneys/Primark), and aviation (Aer Lingus and Ryanair) brands face a challenging year ahead.”
All banks drop in brand value
Irish banking brands have not fared well this year, as all three brands in the ranking have recorded a decrease in brand value, with Allied Irish Banks and Bank of Ireland (down 14% to €1.2 billion) the 3rd and 4th fastest falling brands respectively.
AIB has been hitting the headlines as it continues to negotiate the mortgage overcharging scandal that has wreaked havoc on the bank’s profits, which have dropped significantly over the last year. In an attempt to cut costs, AIB has recently announced its intentions to cut 1,500 jobs by 2022.
Irish banks, as with all brands across the sector, have been suffering as a result of the fragile global economy and political landscape. With banks in the heavily impacted bracket in our COVID-19 analysis, equating to a potential 20% brand value loss for banks globally, the road ahead looks similarly rocky.
Glanbia and Kerry Group hungry for growth
Food brands dominate the ranking with 6 brands featuring. Glanbia-owned brands thinkThin (down 5% to €330 million), Optimum Nutrition (up 2% to €435 million) and BSN (up 6% to €225 million) have, on the whole, posted a solid year. With a combined brand value of €991 million, if Glanbia brands were consolidated they would etch into the top 10 in the ranking.
Kerry Group (up 16% to €634 million) has two sub brands in the ranking, Denny (down 4% to €145 million) and new entrant Richmond (brand value €134 million).
According to our COVID-19 analysis, the food sector falls within the low impact bracket, therefore both Glanbia’s and Kerry Group’s brands should be somewhat shielded in the coming year compared to their fellow Irish brands.
Baileys is Ireland’s strongest brand
In addition to measuring overall brand value, Brand Finance also evaluates the relative strength of brands, based on factors such as marketing investment, familiarity, loyalty, staff satisfaction, and corporate reputation. Alongside revenue forecasts, brand strength is a crucial driver of brand value. According to these criteria Baileys is Ireland’s strongest brand with a Brand Strength Index (BSI) score of 86.2 out of 100 and a corresponding AAA brand strength rating.
The spirits giant has also claimed the title of the fastest growing brand in the ranking, recording a staggering 115% brand value growth to €1.2 billion. The brand has committed to its three-year long strategy of repositioning the brand, transforming it to a drink that can be consumed on many occasions. This, paired with the exponential sales growth of the brand over the previous four years, has placed the spirits giant in a strong position.
We have calculated that spirits brands could potentially lose up to 10% of their brand value following the coronavirus pandemic, therefore falling into the moderately impacted bracket. Baileys’ parent company, global drinks company Diageo, has already warned of a significant sales hit, estimated at just over €200 million, as the brand suffers with bar and pub closures as well as travel restrictions, which are significantly impacting airport sales.
Note to Editors
Every year, Brand Finance values 5,000 of the world’s biggest brands. The 25 most valuable Irish brands are included in the Brand Finance Ireland 25 2020 report.
Brand value is understood as the net economic benefit that a brand owner would achieve by licensing the brand in the open market. Brand strength is the efficacy of a brand’s performance on intangible measures relative to its competitors.
Additional insights, charts, and more information about the methodology, as well as definitions of key terms are available in the Brand Finance Ireland 25 2020 report.
Data compiled for the Brand Finance rankings and reports are provided for the benefit of the media and are not to be used for any commercial or technical purpose without written permission from Brand Finance.
Communications Manager, Brand Finance
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About Brand Finance
Brand Finance is the world’s leading independent brand valuation consultancy, with offices in over 20 countries. Brand Finance bridges the gap between marketing and finance by quantifying the financial value of brands.
Brand Finance helped craft the internationally recognised standard on Brand Valuation – ISO 10668, and the recently approved standard on Brand Evaluation – ISO 20671.
Brand Finance is a chartered accountancy firm regulated by the Institute of Chartered Accountants in England and Wales (ICAEW), and also the first brand valuation consultancy to join the International Valuation Standards Council (IVSC).
Brand Finance’s brand value rankings have been certified by the Marketing Accountability Standards Board (MASB) through the Marketing Metric Audit Protocol (MMAP), the formal process for validating the relationship between marketing measurement and financial performance.
Brand Finance has assessed the impact of the COVID-19 outbreak based on the effect of the outbreak on Enterprise Value, as at 18/03/2020 compared to what it was on 1st January 2020. Based on this impact on Business Value, Brand Finance estimated the likely impact on Brand Value for each sector. Each sector has been classified into 3 categories based on the severity of Business Value loss observed for the sector in the period between 1st Jan 2020 and 18th March 2020.
Definition of Brand
Brand Finance helped to craft the internationally recognised standard on Brand Valuation – ISO 10668. It defines a brand as a marketing-related intangible asset including, but not limited to, names, terms, signs, symbols, logos, and designs, intended to identify goods, services or entities, creating distinctive images and associations in the minds of stakeholders, thereby generating economic benefits.
Brand strength is the efficacy of a brand’s performance on intangible measures, relative to its competitors. In order to determine the strength of a brand, we look at Marketing Investment, Stakeholder Equity, and the impact of those on Business Performance.
Each brand is assigned a Brand Strength Index (BSI) score out of 100, which feeds into the brand value calculation. Based on the score, each brand is assigned a corresponding Brand Rating up to AAA+ in a format similar to a credit rating.
Brand Valuation Approach
Brand Finance calculates the values of the brands in its league tables using the Royalty Relief approach – a brand valuation method compliant with the industry standards set in ISO 10668. It involves estimating the likely future revenues that are attributable to a brand by calculating a royalty rate that would be charged for its use, to arrive at a ‘brand value’ understood as a net economic benefit that a brand owner would achieve by licensing the brand in the open market.
The steps in this process are as follows:
1 Calculate brand strength using a balanced scorecard of metrics assessing Marketing Investment, Stakeholder Equity and Business Performance. Brand strength is expressed as a Brand Strength Index (BSI) score on a scale of 0 to 100.
2 Determine royalty range for each industry, reflecting the importance of brand to purchasing decisions. In luxury, the maximum percentage is high, in extractive industry, where goods are often commoditised, it is lower. This is done by reviewing comparable licensing agreements sourced from Brand Finance’s extensive database.
3 Calculate royalty rate. The BSI score is applied to the royalty range to arrive at a royalty rate. For example, if the royalty range in a sector is 0-5% and a brand has a BSI score of 80 out of 100, then an appropriate royalty rate for the use of this brand in the given sector will be 4%.
4 Determine brand-specific revenues by estimating a proportion of parent company revenues attributable to a brand.
5 Determine forecast revenues using a function of historic revenues, equity analyst forecasts, and economic growth rates.
6 Apply the royalty rate to the forecast revenues to derive brand revenues.
7 Brand revenues are discounted post-tax to a net present value which equals the brand value.