Introducing plain packaging for unhealthy food and drink products could cost companies up to £220bn, a new report from financial consultancy Brand Finance shows.
Plain Packaging 2017 looks at the potential impact of packaging restrictions on products such as fizzy drinks and confectionery, similar to those already used for tobacco products in the UK and other countries across the world.
There has been increased public discussion around the topic in recent years. A study by Wolfram Schultz, a professor of neuroscience at the University of Cambridge, suggests that plain packaging on high calorie food and drinks could help combat health conditions such as diabetes, obesity, heart disease and alcoholism.
The Coca-Cola Company, PepsiCo and Pernod Ricard
Brand Finance found that if plain packaging legislation comes into effect, it could result in at least $293bn (£219bn) worth of losses across the industry, as it would prevent brands from differentiating products from their competitors.
The consultancy has based its figures on the “brand value” of eight major companies, whose brands span four different categories: alcohol, confectionery, savoury snacks and sugary drinks. The eight featured companies are AB InBev, The Coca-Cola Company, Danone, Heineken, Mondelez International, Nestlé, PepsiCo and Pernod Ricard, which collectively own 907 brands within the affected categories.
The consultancy has assessed the current value of the brands by analysing a number of factors, such as familiarity, preference, satisfaction, sustainability, governance, and margins. These factors are collectively termed as the Brand Strength Index (BSI), and see each brand given a score out of 100.
Considering that a “weak” brand typically scores between 50 and 70, the consultancy has assumed that the introduction of plain packaging would see the brands’ individual values reduced to the mid-point of 60 over a five-year period.
The difference between the original BSI score and the score following the introduction of plain packaging would therefore indicate the total loss to each brand, also known as the enterprise value.
£219bn total loss
The report suggests that sugary drinks and alcohol brands are the most at risk. PepsiCo – which owns brands such as Pepsi, 7Up, Doritos and Lay’s – would be the most severely affected, with 27% of its total enterprise value at stake. However, due to The Coca-Cola Company’s larger size the loss of 24% of its enterprise value would mean it would lose more in real terms; $47.3bn (£35bn) compared to PepsiCo’s $43bn (£32bn).
As Pernod Ricard, Heineken, and AB InBev only own alcoholic beverage companies, all of their brands would be exposed to the plain packaging restrictions. Pernod Ricard is estimated to lose most (26%), while Heineken and AB InBev would lose 20% and 15% respectively.
The total estimated cost for all eight companies analysed would be $186.7bn (£140bn). The results of the report have been applied to all 1,300 affected food and drink brands valued by Brand Finance during 2017, whose parent companies have an enterprise value of over $1bn (£750,000). Therefore, the consultancy has indicated that the total estimated loss across the whole industry would be $292.7bn (£219bn).
Read the full report here.