An updated study by Brand Finance estimates the potential value loss to beverage businesses at US$430bn if plain packaging is extended by governments to alcohol and sugary drinks worldwide. This represents an almost 50% increase compared with its 2017 valuation, as brand values grow and parent companies are increasingly relying on their brands’ performance.
Following the introduction of plain packaging for tobacco products and repeated calls to extend the legislation to other sectors, Brand Finance again analysed the potential 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 US$234bn, 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$50bn larger than the US$186.7 billion calculated in 2017, when the first study was conducted.
The study suggests that 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 could lose over a quarter of their enterprise value. They are also the two corporations in the study with most absolute value at risk: US$64.6bn and US$57.2bn respectively.
PepsiCo, owner of popular snack brands such as Lay’s, Doritos, and Cheetos, as well as its iconic eponymous soft drink brand, could 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$430.8bn 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.
Brand Finance stated that 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.”
He 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.”
NAM Implications:
- This initiative will be driven via health economics.
- i.e. governments will track tax received vs. the cost of end-of-life hospitalisation…
- …and legislate to optimise net cost.
- In other words, alcohol, confectionery, savoury snacks, and sugary drinks will be vulnerable to the imposition of gradual deterrents such as plain packaging…
- Watch this space…
