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Plain packaging poses US$300 billion risk to drinks sector

The global drinks industry faces losing almost US$300 billion if it is forced to abide by plain packaging regulations, a new report has estimated.

Plain packaging could cost the international beverage industry billions of dollars in lost sales

Valuation consultancy Brand Finance analysed the financial impact plain packaging could have on the beverage industry if the legislation extends from tobacco to drinks.

A number of countries already enforce plain packaging for tobacco, and some lobbyists have called for the policy to extend to other sectors, such as alcohol, soft drinks and confectionary.

Plain packaging refers to product packaging and design that is devoid of all branding. The policy aims to prevent obesity and lifestyle diseases. In 2015, the WHO-backed Tobacco Atlas called for the extension of plain packaging to alcohol.

According to Brand Finance, eight major brand-owning companies could lose a total of US$187bn should plain packaging be mandated for other FMCG products.

“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.

While The Coca-Cola Company and PepsiCo could lose 24% and 27% of their total enterprise values respectively, leading producers of alcoholic drinks “would see 100% of their brand portfolios exposed to the legislation” and are also therefore particularly vulnerable.

Brand Finance also notes that its estimates refer to the loss of brand value, and “do not account for further potential losses resulting from changes in price and volume of the products sold, or illicit trade”.

As such, the organisation predicts that “the total damage to businesses affected is likely to be higher” than US$293bn.

Haigh added: “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.”

Earlier this year, Alcohol Beverages Australia argued that the introduction of plain packaging and graphic warnings for alcohol in Australia would be “off the mark” and tantamount to “scaremongering”.

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