Plain packaging could wipe billions off the FMCG sector

Five years on from Australia’s cigarette branding ban, Brand Finance’s Mark Crowe considers the impact plain packaging would have on the FMCG industry.

Plain packaging laws 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 month marks five years since Australia implemented plain packaging on tobacco. Since then France and the UK have fully implemented plain packaging for tobacco products and Ireland started implementing the regulations in September this year. Other countries, including Norway, Georgia, Slovenia, Hungary, and New Zealand have legislated for it.

Although plain packaging for food and drink has not been legislated for as of yet, an increasing number of countries are introducing strict regulations on the marketing and advertising of these products in an attempt to prevent obesity and lifestyle diseases.

Advocates claim that plain packaging removes the visual cues that prompt existing users to purchase the product and that it prevents children or other potential new customers from developing brand loyalty. Ultimately, they believe this leads to better health outcomes for these individuals and the population as a whole.

On the other hand, opponents suggest that, despite having been in place in Australia since December 2012, there is still no reliable evidence that plain packaging works to achieve such aims. They claim that the removal of branding has merely led to commoditisation with well-established brands losing market share to cheaper or in some cases illegal alternatives.

To apply plain packaging to alcohol, confectionery, savoury snacks, and sugary drinks would render some of the world’s most iconic brands unrecognisable, changing the look of household cupboards and supermarket shelves forever. A look at just a handful of the world’s biggest and most iconic brands reveals the profound potential impact of plain packaging to corporate stock values.

Brand Finance has analysed the potential effects of the global adoption of such a policy on eight major brand owners: AB InBev, The Coca-Cola Company, Danone, Heineken, Mondelez International, Nestlé, PepsiCo, and Pernod Ricard. Between them, these firms control 1,242 brands, 907 of which are used to market alcohol, confectionery, savoury snacks, and sugary drinks.

Plain packaging would severely limit the effectiveness of these brands as marketing tools, preventing firms from differentiating their products. A before and after analysis of the brand strength of each of the 907 brands owned by these eight firms indicates a loss to enterprise value of $186.7 billion.

The contribution of the analysed brands to their parent companies would fall 33.9% from $551.0 billion to $364.3 billion, seeing overall enterprise value fall 16.5% from $1.133 trillion to $946.6 billion.

The Coca-Cola Company and PepsiCo are among those corporations with most value at risk: $47.3 and $43.0 billion respectively, equal to 24% and 27% of their total enterprise values.

Entire brand portfolios of companies specialising in alcoholic drinks, such as Heineken, AB InBev, and Pernod Ricard, would fall within the scope of the legislation, jeopardising future revenue streams.

An extrapolation of the results to all major alcohol and sugary drinks brands points towards a potential loss of $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. The analysis is also conducted in isolation from any other government policies, such as changes in taxes. Therefore, the total damage to businesses affected is likely to be higher.

Furthermore, this predicted loss of value 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.

With this much value at stake, there is no doubt that policy makers, governments, brand owners, finance analysts, marketers, and campaigners should carefully consider the economic consequences.

Mark Crowe is managing director, Brand Finance Australia.


Get the latest media and marketing industry news (and views) direct to your inbox.

Sign up to the free Mumbrella newsletter now.



Sign up to our free daily update to get the latest in media and marketing.