· Starbucks at the head of the table with 27% increase in brand value to $32.4 billion
· Healthy brands lag as big restaurant chains broaden menus
· Wendy’s brand value jumps 61% on ambitious expansion plan
Starbucks remains the world’s most valuable restaurant brand following 27% growth to US$32.4 billion, while big restaurant chains boomed in value globally, according to a new report by Brand Finance, the world’s leading independent brand valuation and strategy consultancy.
Starbucks’ strong brand value results come on the back of strong annual revenues and solid forecasts, despite the brand facing global challenges as it seeks to expand into Asia, especially China. Starbucks’ Brand Strength Index score increased 3% to 89.2 and retained a brand strength rating of AAA.
The remainder of the world’s top six most valuable restaurants are ranked in the same order as last year, with McDonald's (up 23% to US$24.9 billion), KFC (up 31% to US$8.0 billion), Tim Hortons (up 23% to US$5.0 billion), and Domino's Pizza (up 22% to US$4.8 billion) all recording strong growth in brand value as they recalibrated their offerings to suit changing customer demands.
On the other hand, Subway (down 4% to US$8.1 billion), Pizza Hut (down 6% to US$3.1 billion), and Chipotle (down 13% to US$2.5 billion) each struggled with different challenges. Subway brand suffered from reduced revenue forecasts as a consequence of closing more stores than it opened. Pizza Hut need to turn around fortunes in the USA to regain brand momentum, while Chipotle is still recovering from the food poisoning scares of 2015 and continues to search for new leadership.
Bryn Anderson, Director at Brand Finance, commented:
“The results of the big restaurant brands are a reminder of the old adage that every happy family is alike, but every unhappy family is unhappy in its own way. The brands that have grown in value are those that are successfully responding to, and leading, customer demands. On the other hand, each of the big brands that suffered have unique causes.”
Healthy brands lag as big restaurant chains broaden menus
The shift towards healthier choices may be regarded as one of the biggest trends in the restaurant sector, but it is not evident in the 2018 brand rankings, though all the largest restaurants have improved their product offerings in this segment in a bid to retain customers. 13th-ranked Panera Bread, which has crafted a reputation for the healthiest fast-food offering and has expanded rapidly in recent years, saw a brand value rise of a steady 7% to US$2.2 billion, though it was below the sector growth average.
The domination of US groups in the restaurant sector continues, with US operators accounting for US$104.5 billion of the aggregate US$113.4 billion of brand value and the US being home to 22 of the top 25 restaurant brands. Franchising has proved an effective way for groups to expand quickly at lower cost and the most successful groups have processes that reduce the risks associated with loss of control. Brands with 25% or more of revenues from franchisees increased brand value by an average 17% this year, compared to 6% where franchise revenues are less than 25% of the total. McDonalds, for example, plans to open 1,000 new restaurants in 2018, 75% of which will be through licensees and affiliates, leaving US$2.4 billion to invest in upgrading existing restaurants.
Wendy’s tops growth table with ambitious expansion plan
The fastest-growing brand in the sector was 12th-ranked Wendy's (up 61% to US$2.3 billion) which has embarked on a global expansion and opened more than 100 sites in the first three quarters of 2017. Wendy’s has increased same-restaurant sales for 19 consecutive quarters, reflecting the strength and popularity of the brand.
Note to Editors
Every year, leading valuation and strategy consultancy Brand Finance values the world’s biggest brands. The 25 most valuable restaurant brands are included in the Brand Finance Restaurants 25 league table.
Brand value is equal to a net economic benefit that a brand owner would achieve by licensing the brand in the open market. Brand strength is used to determine what proportion of a business’s revenue is contributed by the brand.
More information about the methodology as well as definitions of key terms are available in the Brand Finance Restaurants 25 report.
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.