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$300 Billion at Stake as Plain Packaging Threatens Beverage Industry

07 December 2017
This article is more than 3 years old.
  • Brand Finance has estimated the potential value loss to businesses at close to $300bn if plain packaging is extended to the beverage industry.
  • The Coca-Cola Company and PepsiCo would each lose approximately $45bn or 25% of enterprise value.
  • Alcoholic drinks producers like Heineken, AB InBev, and Pernod Ricard would see 100% of their brand portfolios exposed to the legislation.

View the full Brand Finance Plain Packaging 2017 report here

Following the introduction of plain packaging for tobacco products in some countries and calls to extend the legislation to other sectors, Brand Finance has analysed the potential financial impact of such a policy on food and beverage brands in four categories: alcohol, confectionery, savoury snacks, and sugary drinks.

Eight major brand-owning companies are predicted to lose a total of $187 billion should plain packaging be mandated for other FMCG products, with alcohol and sugary drinks brands most vulnerable.

The Coca-Cola Company and PepsiCo are among those corporations with most value at risk; $47.3 and $43.0 billion respectively, equal to 24% and 27% of their total enterprise values.

Entire brand portfolios of companies specialising in alcoholic drinks, such as Heineken, AB InBev, and Pernod Ricard, would fall within the scope of the legislation, jeopardising future revenue streams.

An extrapolation of the results to all major alcohol and sugary drinks brands, points towards a potential loss of $293 billion for the beverage industry globally.

The estimates refer to the loss of value derived specifically from brands and do not account for further potential losses resulting from changes in price and volume of the products sold, or illicit trade. Therefore, the total damage to businesses affected is likely to be higher.

David Haigh, CEO of Brand Finance, commented:

To apply plain packaging in the food and drink sector would render some of the world’s most iconic brands unrecognisable, changing the look of household cupboards and supermarket shelves forever, and result in astronomical losses for the holding companies.

Predicted loss of brand contribution to companies at risk is only the tip of the iceberg. Plain packaging also means losses in the creative industries, including design and advertising services, which are heavily reliant on FMCG contracts.

Background

Plain packaging is often referred to as a branding ban or brand censorship. By imposing strict rules and regulations, the legislator requires producers to remove all branded features from external packaging, except for the brand name written in a standardised font, with all surfaces in a standard colour.

An increasing number of countries are introducing strict regulations on the marketing and advertising of food and drink products in an attempt to prevent obesity and lifestyle diseases. With calls for more intrusive measures growing, the prospect of further applications of plain packaging looks increasingly likely.

In 2015, the WHO-backed Tobacco Atlas, called for extending plain packaging to alcohol and some food and drink products. In 2016, Public Health England released a report calling for plain packaging to be considered for alcohol, a topic which was raised again only last month in medical journal, The Lancet. Also in the past month, Canada’s Yukon became the first territory in the world to introduce sizeable health warning labels on all alcohol products, cautioning against the risk of cancer.

ENDS

Note to Editors

For full findings and methodology, please consult the Brand Finance Plain Packaging 2017 report.

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Media Contacts

Konrad Jagodzinski
Konrad Jagodzinski
Communications Director
Brand Finance
Florina Cormack-Loyd
Florina Cormack-Loyd
Senior Communications Manager
Brand Finance

About Brand Finance

Brand Finance is the world’s leading brand valuation consultancy. Bridging the gap between marketing and finance, Brand Finance evaluates the strength of brands and quantifies their financial value to help organisations of all kinds make strategic decisions.

Headquartered in London, Brand Finance has offices in over 20 countries, offering services on all continents. Every year, Brand Finance conducts more than 5,000 brand valuations, supported by original market research, and publishes nearly 100 reports which rank brands across all sectors and countries.

Brand Finance is a regulated accountancy firm, leading the standardisation of the brand valuation industry. Brand Finance was the first to be certified by independent auditors as compliant with both ISO 10668 and ISO 20671, and has received the official endorsement of the Marketing Accountability Standards Board (MASB) in the United States.

Methodology

Definition of Brand

Brand is defined 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

Brand strength is the efficacy of a brand’s performance on intangible measures relative to its competitors. Brand Finance evaluates brand strength in a process compliant with ISO 20671, looking at Marketing Investment, Stakeholder Equity, and the impact of those on Business Performance. The data used is derived from Brand Finance’s proprietary market research programme and from publicly available sources.

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 brands in its rankings 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, while 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 Discount post-tax brand revenues to a net present value which equals the brand value.

Disclaimer

Brand Finance has produced this study with an independent and unbiased analysis. The values derived and opinions presented in this study are based on publicly available information and certain assumptions that Brand Finance used where such data was deficient or unclear. Brand Finance accepts no responsibility and will not be liable in the event that the publicly available information relied upon is subsequently found to be inaccurate. The opinions and financial analysis expressed in the study are not to be construed as providing investment or business advice. Brand Finance does not intend the study to be relied upon for any reason and excludes all liability to any body, government, or organisation.

The data presented in this study form part of Brand Finance's proprietary database, are provided for the benefit of the media, and are not to be used in part or in full for any commercial or technical purpose without written permission from Brand Finance.

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