Already the stalking horses have been sent out.
The WHO-backed Tobacco Atlas has called for extending plain packaging to alcohol and some food and drink products.
An article in The Lancet only last November ruminated, “It is not unimaginable that bottles of Chateau Mouton Rothschild, which once bore the artwork of Salvador Dalí and Pablo Picasso, might one day be required to have plain packaging and images of oesophageal cancer or a cirrhotic liver”.
Nearer to home, Public Health England released a report in 2016 calling for plain packaging to be considered for alcohol.
And while we here in Ireland ponder the labelling legislation, Canada’s Yukon Liquor Corporation, which has responsibility for Social Policy and Planning in the territory, affixed cancer warning labels to alcohol containers in the Whitehorse liquor store there as part of an eight-month scientific study. After approximately a month, the study was halted.
Brand value losses
But what are the consequences of this restriction being introduced globally? Under such a scenario, how would plain packaging affect the brand value among the worldwide behemoths of the drinks business? What would be the loss in value to these drinks industry brands should future legislation force them to remove their instantly-recognisable logos from their products?
Brand Finance, the world’s leading independent brand valuation and strategy consultancy, conducted a brand impact analysis on plain packaging at the end of last year.
It looked at what could befall the global beverage industry should lawmakers around the globe replicate legislation currently being used to curb cigarette sales.
It found that while some soft drinks companies such as Pepsi and Coca-Cola would see a significant proportion of their brand value exposed due to sugar content, alcohol producers such as AB InBev, Heineken and Pernod Ricard would be subject to 100% brand exposure due to their alcohol content.
Decimation of Enterprise Values
Brand Finance’s report makes the hardly surprising observation that, “Plain packaging would severely limit the effectiveness of these brands as marketing tools, preventing firms from differentiating their products”.
However it goes on to tote up the extent to which these enterprises will lose value, stating that with such plain packaging legislation in place companies such as PepsiCo, one of the world’s most iconic and significant brand-owning businesses, stands to lose 27% of its total enterprise value – or $43 billion.
Similarly, the larger Coca-Cola Company could lose $47.3 billion, 24% of its enterprise value.
But as a 100% alcohol company Pernod Ricard, for example, stands to lose 26% of its enterprise value, an implied loss of $10 billion, while Heineken could lose 20% of its enterprise value ($12.2 billion) and AB InBev $43.3 billion (15%).
In Pernod’s case brands such as Jameson would suffer an implied loss of around $740 million and the Coca-Cola Company would see its Coca-Cola brand running up an implied loss of $36.3 billion globally.
Brand Finance calculates that the Heineken brand itself would suffer an implied loss of around $3.6 billion.
InBev’s Bud Light brand would see an implied loss of around $7.1 billion with BF calculating an implied loss of around $6.4 billion for the Budweiser brand itself.
Furthermore the impact of a potential increase in illicit trade on reported sales volumes has not even been modelled into this study and nor have the effects of adjustments in excise tax.
Indeed Brand Finance considers its estimate of the damage from plain packaging to businesses in the global alcohol industry conservative and likely to be higher than the figures presented in this report.
“Predicted loss of brand contribution to companies at risk is only the tip of the iceberg,” points out Brand Finance’s Chief Executive David Hughes, “Plain packaging also means losses in the creative industries including design and advertising services which are heavily reliant on FMCG contracts”.
Today, brand identity and packaging offer the producer the opportunity to “talk” to the decision-making consumer at the Point Of Purchase. This would be eradicated under any plain packaging legislation.
Where plain packaging has been introduced in the tobacco industry it seems to have led to a degree of trading down, especially as excise increases bite home, thus transferring the purchase imperative to price rather than quality, believe some beverage and tobacco analysts such as Morningstar analyst Philip Gorham who told just-drinks recently that the rise of stores such as Lidl and Aldi has made the consumer far more accepting of private-label brands.
“Plain packs could provide further encouragement to trade down,” he said.
With soft drinks and alcohol companies presently seeking market growth through premiumisation, downward pressure on price would pose obvious challenges to an industry already under fire internationally.
All numbers in the Brand Finance report
are in absolute terms and are based
on the entire value of the company,
including brand assets and brand strength.
The report played out the effect on the global beverage industry
of plain packaging and brand loss,
estimating a $293 billion in total implied losses
– at least….