Top 25 restaurant brands could lose up to $33bn from COVID-19
The world’s top 25 most valuable restaurant brands could lose up to US$33 billion worth of brand value as a result of the COVID-19 pandemic, according to the latest Brand Finance Restaurants 25 2020 report. Brand Finance’s analysis shows that the restaurant sector is a heavily impacted industry globally and could face a potential 20% loss in brand value.
Looking beyond the restaurant sector, the value of the 500 most valuable brands in the world, ranked in the Brand Finance Global 500 2020 league table, could fall by an estimated US$1 trillion as a result of the Coronavirus outbreak.
Brand Finance has assessed the impact of COVID-19 based on the effect of the outbreak on enterprise value, compared to what it was on 1st January 2020. The likely impact on brand value was estimated for each sector. The industries have been classified into three categories – limited impact (minimal brand value loss or potential brand value growth), moderate impact (up to 10% brand value loss), and heavy impact (up to 20% brand value loss) – based on the level of brand value loss observed for each sector in the first quarter of 2020.
Richard Haigh, Managing Director, Brand Finance, commented:
“It is no surprise that the restaurant sector has borne the brunt of the global coronavirus lockdown, with closures destroying sales and social distancing measures changing the way in which customers dine for the foreseeable future. With consumer habits changing towards delivery and collection, it is yet to be seen how the industry will look in the coming year. More dynamic brands that respond and transform in response to this shift, should record a more positive movement in their brand value than those that are slow or reluctant to change.”
Déjà Brew for Starbucks in top spot
Starbucks has retained the title of the world’s most valuable restaurant brand following a 5% brand value increase to US$41.0 billion. The multinational coffee house chain leads the way for a further 19 US brands in the Brand Finance Restaurants 25 2020 ranking, with all 20 brands reaching a total brand value of over US$150 billion.
Starbucks’ growth-at-scale agenda – which includes innovation in its technology and development of its rewards programme – has paid off, with the brand posting solid sales growth over the last year, particularly in the US and Chinese markets, which saw a 6% and 5% increase respectively. Starbucks has, however, accelerated plans to close 400 restaurants due to COVID-19, as part of its store transformation strategy.
China’s Haidilao grows 136%
China’s most popular hot pot restaurant, Haidilao, is the fastest growing brand in this year’s ranking, up a staggering 136% to US$4.7 billion, simultaneously jumping 6th spots in the ranking from 9th to 15th. Serving more than 100 million customers a year, Haidilao prides itself on its best in class customer service, a key driver towards the brand’s pursuit of perfecting the dining experience.
The brand has continued to focus on its expansion programme, both at home and abroad, with over 300 stores opening globally last year, with Haidilao aiming to have 1,000 stores worldwide by the end of 2020.
Ones to watch
There are three news entries in this year’s ranking: Chick-fil-A (brand value US$3.5 billion), Wetherspoons (brand value US$1.0 billion) and Popeyes (brand value US$898 million) entering in 13th, 21st and 24th positions respectively.
Chick-fil-A posted record revenues in 2019 - up an impressive 48%. The brand was, however, forced to close its UK restaurant a mere 6 months after opening its doors following controversary surrounding the brand’s stance on LGBTQ+ rights. Rival Popeyes’ entrance in the ranking can somewhat be attributed to its viral chicken sandwich, which sold out in less than a month.
Celebrating its 40th birthday in 2019, Wetherspoons now boasts a vast portfolio of over 900 pubs and hotels spanning the UK - an impressive feat as pubs continue to diminish, with one pub shutting its doors permanently every 12 hours across the country. Renowned for its bargain booze and often spectacular buildings, Spoons has thus far been able to buck the trend across the sector. Unsurprisingly, however, Wetherspoons has a rough journey ahead as it negotiates months of nationwide pub closures amid the COVID-19 pandemic.
McDonald’s is sector’s strongest
In addition to measuring overall brand value, Brand Finance also evaluates the relative strength of brands, based on factors such as marketing investment, customer familiarity, staff satisfaction, and corporate reputation. Alongside revenue forecasts, brand strength is a crucial driver of brand value. According to these criteria, McDonald’s (up 19% to US$37.4 billion) is the world’s strongest restaurant brand with a Brand Strength Index (BSI) score of 87.9 out of 100 and a corresponding AAA brand strength rating.
McDonald’s Velocity Growth Plan has continued to reap results and the brand boasts strong financial performances, last year achieving the highest global comparable sales growth in over a decade. Despite retaining the title of the sector’s strongest brand, the global fast food behemoth, has dropped in 2.4 points in its BSI score year-on-year, as the brand grapples with a drop in recommendation metrics, as well as a general drop in its web visits and social media following. Brand Finance’s global brand monitor study has unearthed this trend across fellow fast food restaurants signalling, perhaps, a shift in the public’s attitude towards fast and unhealthy food options.
Despite 75% of the brand’s restaurants remaining open during the coronavirus pandemic, CEO Chris Kempczinski cited significant disruption to the business from limited operations and a shift in consumer behaviour, which has dented sales significantly. With the brand since returning to 95% store operation – as of June 2020 – the brand hopes to see a marked increase in sales again.
Note to Editors
Every year, Brand Finance values 5,000 of the world’s biggest brands. The 25 most valuable restaurant brands are included in the Brand Finance Restaurants 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 Restaurants 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.
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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, compared to what it was on 1st January 2020. Based on this impact on enterprise value, Brand Finance estimated the likely impact on brand value for each sector. The industries have been classified into three categories – limited impact (0% brand value loss), moderate impact (up to 10% brand value loss), and heavy impact (up to 20% brand value loss) – based on the severity of enterprise value loss observed for the sector in the period between January and 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.