Brand Finance estimates the potential value loss to businesses at close to US$300 billion if plain packaging is extended to the beverage industry, noting that The Coca-Cola Company and PepsiCo would each lose approximately $45 billion or 25 percent of enterprise value.
December 6, 2017
by Canadian Packaging staff
Following the introduction of plain packaging for tobacco products and calls to extend the legislation to other sectors, Brand Finance has analyzed the potential impact of such a policy on food and beverage brands in four categories: alcohol, confectionery, savory snacks, and sugary drinks.
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 standardized font, with all surfaces in a standard color.
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 (World Health Organization)-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.
In the beverage industry, eight major brand-owning companies are predicted to lose a total of US$187 billion should plain packaging be mandated for other FMCG (fast-moving consumer good) products, with alcohol and sugary drinks brands most vulnerable.
The Coca-Cola Company and PepsiCo are among those corporations with most value at risk; US$47.3 and US$43.0 billion respectively, equal to 24 per cent and 27 per cent of their total enterprise values.
Entire brand portfolios of companies specializing in alcoholic drinks, such as Heineken, AB InBev, and Pernod Ricard, would fall within the scope of the legislation, jeopardizing future revenue streams.
An extrapolation of the results to all major alcohol and sugary drinks brands, points towards a potential loss of US$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.
Brand Finance chief executive officer David Haigh comments: “To apply plain packaging in the food and drink sector would render some of the world’s most iconic brands unrecognizable, changing the look of household cupboards and supermarket shelves forever, and result in astronomical losses for the holding companies.”
He continues, “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.”
To read the full Plain Packaging 2017 report prepared by Brand Impact, click HERE.
About Brand Finance
Brand Finance is a leading global brand and business valuation consultancy, with offices in over 20 countries. It provides clarity to marketers, brand managers and investors by quantifying the financial value of brands. Drawing on expertise in strategy, branding, market research, visual identity, finance, tax and intellectual property, Brand Finance helps clients make the right decisions to maximize brand and business value and bridges the gap between marketing and finance. Company information available at www.brandfinance.com.