Following the introduction of plain packaging for tobacco products and repeated calls to extend the legislation to other sectors, Brand Finance has once again analysed the potential impact of such a policy on food and beverage brands in four categories: alcohol, confectionery, savoury snacks, and sugary drinks. Responding to growing demand for more up-to-date analysis, this second iteration of the Brand Finance Plain Packaging report builds on the findings of the original 2017 study and is being launched today at the Food Ethics Council’s Food Policy on Trial event in London.
Eight major brand-owning companies are predicted to lose a total of US$234.0 billion, with alcohol and sugary drinks brands the most vulnerable. Given the growth of brand values over the last two years, the estimation is nearly US$50 billion larger than the US$186.7 billion calculated in 2017, when the first study was conducted.
Alcoholic drinks producers like Heineken, AB InBev, and Pernod Ricard would see 100% of their revenues exposed to the legislation, jeopardising the current business model.
Pernod Ricard, at 36.2%, has the largest proportion of enterprise value at stake. Similar to other drinks giants, AB InBev and The Coca-Cola Company are both set to lose over a quarter of their enterprise value. They are also the two corporations in the study with most absolute value at risk: US$64.6 billion and US$57.2 billion respectively.
PepsiCo, owner of popular snack brands such as Lay’s, Doritos, and Cheetos, as well as its iconic eponymous soft drink brand, would see over two-thirds of its brands affected by legislation, the highest proportion of any company outside of alcoholic beverages.
An extrapolation of the results to all major alcohol and sugary drinks brands, points towards a potential loss of US$430.8 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.
This should raise concerns not only for brand owners, but also for governments, policy makers, marketers, and campaigners.
David Haigh, CEO of Brand Finance, commented:
“Since we produced the first Brand Finance Plain Packaging report in 2017, a number of other countries have either implemented – or legislated for – plain packaging for tobacco products. With health advisors labelling obesity ‘the new smoking’, it is not surprising that there have been repeated calls for this type of legislation to be expanded into the food and drinks sectors. It is obvious, however, that this would severely damage these companies’ business values.”
David added: “However, the predicted loss of brand contribution to companies at risk is just the tip of the iceberg. Plain packaging would also lead to losses in the creative industries, including design and advertising services, which are heavily reliant on FMCG contracts.”
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. In October last year, Ireland passed a Bill to introduce mandatory, sizeable health warning labels on all alcohol products, cautioning against the risk of cancer. Earlier this year, UK think tank, the Institute for Public Policy Research, called for plain packaging to be extended to all confectionary, crisps and sugary drinks, to put them on ‘a level playing-field with fruit and vegetables’.
Brand Finance is the world’s leading brand valuation consultancy. Bridging the gap between marketing and finance for more than 25 years, Brand Finance evaluates the strength of brands and quantifies their financial value to help organizations 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 over 100 reports which rank brands across all sectors and countries.
Brand Finance also operates the Global Brand Equity Monitor, conducting original market research annually on over 5,000 brands, surveying more than 150,000 respondents across 38 countries and 31 industry sectors. Combining perceptual data from the Global Brand Equity Monitor with data from its valuation database enables Brand Finance to arm brand leaders with the data and analytics they need to enhance brand and business value.
Brand Finance is a regulated accountancy firm, leading the standardization 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.