· Britain’s most valuable brands decline by an average of 6%
· Devaluation of the pound in the wake of Brexit is the primary cause
· Sudden loss of value exposes iconic brands to foreign takeovers
· Shell, Britain’s most valuable brand, has weathered the trend and is up 16%
· Lynx is Britain’s fastest growing brand after ditching ‘The Lynx Effect’ branding
Every year, leading valuation and strategy consultancy Brand Finance values the brands of thousands of the world’s biggest companies. Britain’s 150 most valuable brands are featured in the 2017 Brand Finance UK 150.
View the full list of Britain’s 150 most valuable brands here
British brands have suffered some dramatic falls in their dollar-denominated values this year. Of the 140 of the brands with data for both 2016 and 2017, 88 have declined in value. On average, the UK’s top brands lost 6% of their value last year. There are a number of reasons behind this, but the common factor is the devaluation of sterling in the wake of the Brexit vote.
This significant loss of brand value should concern British policy-makers, brand owners, workers and consumers. Senior politicians have vowed to protect our brand ‘crown jewels’ and Theresa May has promised tougher government scrutiny of brand acquisitions. However, the UK is currently one of the most attractive places to buy brands; it is one of the world centres of the marketing and advertising industry and so, a hub of brand creation; there is relatively little regulatory scrutiny of takeovers; and workforce restructuring is relatively straightforward, particularly compared to European markets.
In this context, the sudden devaluation of British brands leaves them vulnerable to takeovers from international buyers. Unilever and Burberry both recently defended bids from the US (from Kraft-Heinz and Coach respectively), while ITV is reported to have been the subject of repeated offers. Associated British Foods was unable to bring the Weetabix brand home after a stronger bid from America’s Post Holdings while world renowned chip-maker ARM was acquired by Japan’s SoftBank. This spate of acquisitions and the prospect of more raises serious questions about the potential impact on investment and employment.
David Haigh, CEO of Brand Finance, said: “While the impact of Brexit on the broader economy has not lived up to the doomsday scenarios, British brands are clearly vulnerable to takeover by foreign firms. At one level, this is testament to Britain’s strength at developing and managing desirable brand assets. However, more should be done to ensure Britain gets its fair share of the spoils for its quality brands. Tighter regulation is one solution, but another is for management and shareholders to be fully aware of both the saleable value of their brands and the value that those brands contribute to the overall business. This way, hasty sales for less than fair value, that endanger British jobs, might be avoided.”
Though British brands have suffered in terms of their dollar value, looking at sterling-denominated figures shows that the majority continue to perform well. Changing the currency almost reverses the decline in fact; 85 of the brands are increasing in value in GBP terms.
Most valuable brand
Shell is Britain’s most valuable brand, with a brand value of £28.3 billion, up 35%. Oil prices saw a fairly steady increase across 2016 as supply became slightly more constrained, helping to improve revenues. After a drop at the beginning of the year, Brent Crude nearly doubled in value from early January to the end of December. Its asset disposal program following the completion of its merger with BG has helped to consolidate and strengthen Shell’s brand, which has been upgraded from AA+ to AAA- thanks to a Brand Strength Index score of 82. Shell’s longstanding partnership with Ferrari continues to deliver returns, with a demonstrable price premium attributable to the association with the world’s most powerful auto brand. Shell invests heavily in campaigns that position it as an innovative provider of the clean energy solutions of the future. As part of its ‘Make the Future’ initiative, Shell enlisted the help of six popstars from around the world for its ‘Best Day of My Life’ video, which became one of the most viral ads of 2016.
Second-placed Vodafone had a more difficult year; even when measured in sterling its brand value declined (by 9%). Fellow telecoms brand BT fell even further, dropping 28% to £8.8 billion, following its accounting scandal and the ongoing Openreach saga.
HSBC, in third place, is also down, though by just 1%. HSBC is going through a period of consolidation. At the domestic level, over a quarter of its UK branches have been closed in the last two years as digitisation and online banking become more prevalent. Internationally, HSBC’s Brazilian business was sold to Bradesco. The $5.2 billion sale represented a $1.7 billion loss which hit HSBC’s profitability in 2016. Stuart Gulliver will persevere with the cost savings however, having achieved economies of $2.8 billion this year. HSBC’s marketing communications have shifted to reflect its more focused approach. The ‘World’s Local Bank’ message, conveyed to such great effect by outgoing Marketing Director Chris Clark for so many years has been replaced with campaigns that now focus more on HSBC’s role in facilitating personal and business ambitions.
Banks are of course at particular risk from Brexit. Theresa May’s apparent tough negotiating line may mean that passporting rights are at risk. Stuart Gulliver has indicated that over 1,000 jobs are likely to be moved to Europe once Brexit takes effect in 2019. Barclays appears to have been hit harder, with a jump in its applied discount rate reflecting its exposure to the uncertainties of the operating environment for UK financial services, leading to a brand value drop of 7% to £10 billion.
The apparel sector has been marked by a stark online/offline divide. The continued scandals surrounding Sports Direct have contributed to a 5% brand value loss. With Mike Ashley facing a Select Committee and heavy media scrutiny over the working conditions at its Shirebrook warehouse as well as its alleged attempted surveillance of MPs, Sports Direct’s brand dropped in value to £1.16 billion. In contrast, ASOS has staged a revival after a series of unfortunate events including a major warehouse fire. ASOS is benefitting from its international expansion and the exponential growth of ecommerce. The retailer’s brand rose by 29% over the past year to £710 million.
Three airlines made the UK 150 this year, led by British Airways with a brand value of £2.9 billion. However, the longer term shift towards low cost airlines combined with weakened consumer spending power in long-haul locations is evident. British Airways and Virgin Atlantic are both down, by 7% and 15% respectively. In contrast, easyJet is up by 60% to £1.34 billion. As consumer budgets for holidays remain tight and people look closer to home for their breaks, easyJet’s brand could add further value, though even on short haul flights, the weakened pound threatens a reduction in foreign travel.
Fastest growing brand
Lynx is Britain’s fastest growing brand, up 91% to £2.1 billion. Unilever decided to ditch the increasingly anachronistic ‘Lynx Effect’ campaign that was seen to be out of touch with the modern male. It has performed an almost complete reversal of its previous identity, with a series of new campaigns designed to portray a “radical and progressive view on masculinity”. Despite initial cynicism from marketing pundits, the approach appears to be paying off.
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.
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 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 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.
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.