Mega losses forecast if plain packaging comes to the beverage industry

Friday, 08 December, 2017

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They did it to tobacco — a minimum AU$395 billion loss is forecast if plain packaging is forced onto the beverage industry.

In a world first, Australia introduced plain packaging to the tobacco industry in 2012 to attempt to reduce the appeal of tobacco products to consumers, increase the effectiveness of health warnings and reduce the ability of the retail packaging of tobacco products to mislead consumers about the harmful effects of smoking or using tobacco products.

Now there is global talk of extending this type of legislation to cover sugar-laden beverages, alcohol, confectionery and savoury snacks.

Brand and business valuation consultancy Brand Finance has estimated the potential value loss to businesses at close to AU$395 billion if plain packaging is extended to the beverage industry.

If this legislation was to come to pass, alcoholic drinks producers like Heineken, AB InBev and Pernod Ricard would see 100% of their brand portfolios exposed while PepsiCo and The Coca-Cola Company would each lose around $45bn or 25% of enterprise value.

Brand Finance analysed the potential financial impact of a plain packaging policy on food and beverage brands in four categories: alcohol, confectionery, savoury snacks and sugary drinks. They found that alcohol and sugary drinks brands are the most vulnerable.

Eight major brand-owning companies (PepsiCo, Pernod Ricard, The Coca-Cola Company, Heineken, AB InBev, Nestlé, Mondelez International and Danone) are predicted to lose a total of AU$247 billion should plain packaging be mandated. The estimate refers to the loss of value derived specifically from brands and does 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.

An extrapolation of the results to all major alcohol and sugary drinks brands points towards a potential loss of AU$387 billion for the beverage industry globally.

“To apply plain packaging in the food and drink sector would render some of the world’s most iconic brands unrecognisable, changing the look of household cupboards and supermarket shelves forever, and result in astronomical losses for the holding companies,” said David Haigh, CEO of Brand Finance.

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.

More about plain packaging

By imposing strict rules and regulations, legislators require 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. This severely limits the effectiveness of using brands as marketing tools and so prevents firms from differentiating their products.

As governments look to improve public health by reducing obesity and lifestyle diseases, the possibility of plain packaging for alcohol, sugary drinks, confectionery and savoury snacks is increasing.

Countries are already introducing regulations on the marketing and advertising of food and drink products. 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, a topic which was raised again only last month in medical journal The Lancet. Also, Canada’s Yukon has just become the first territory in the world to introduce sizeable health warning labels on all alcohol products, cautioning against the risk of cancer.

For a fascinating insight, including all the findings and methodology, read the Brand Finance Plain Packaging 2017 report.

Image credit: © Bognat

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