Plain packaging on spirits could ‘stifle innovation’
There are calls for alcohol producers to follow the tobacco industry and use plain packaging for their well known brands. The Spirits Business investigates.
*This feature was originally published in the April 2018 issue of The Spirits Business
Three hundred billion dollars – that’s the potential brand devaluation for the global drinks industry should beverages succumb to the same plain-packaging fate as tobacco. The eye-watering estimated loss was reported by valuation consultancy Brand Finance, whose experts analysed the impact plain packaging could have on the drinks industry – including alcohol.
Lobbyists, such as the World Health Organization (WHO), have been calling for plain packaging for alcohol products to denormalise and prevent obesity and lifestyle diseases, which could be brought on by harmful drinking. It follows years of successful campaigning for plain packaging on tobacco, which has already been implemented in several markets as governments try to reduce the number of “premature deaths” caused by smoking.
AT GREATEST RISK
According to the Brand Finance report, published in December, eight leading brand-owning companies could stand to lose a total of US$187 billion should plain packaging be extended from tobacco to other FMCG products – putting spirits in the firing line. Prominent producers of alcoholic drinks, such as Pernod Ricard, would be at greatest risk as they “would see 100% of their brand portfolios exposed to the legislation”.
“If you look at the current enterprise value of the industry, it’s about US$1.2 trillion,” says David Haigh, CEO of Brand Finance. “If that amount [US$300bn] were lost, it would be 25% of the entire industry. It’s a pretty cataclysmic drop if that were to happen.”
Australia banned branded tobacco products in 2012, and just last year the UK made a similar move by ordering that all cigarettes and tobacco be sold in plain green packets adorned with graphic images of smoke-induced ailments.
The UK legislation also stated that health warnings must cover at least 65% of the front and back of packs, brand names must be in a standardised typeface, and cigarette cartons can contain no fewer than 20 cigarettes.
But how effective have the measures been in convincing consumers to stop smoking – or, at the very least, reduce their intake? A study by Australia’s Department of Health last year concluded that the number of smokers fell by 108,228 people from December 2012 (when the law changed) to September 2015. Could plain packaging for alcohol have a similar effect on combatting harmful drinking?
Michael Vachon, head of brand development at Maverick Drinks, believes removing branding from alcoholic beverages will be ineffective at tackling harmful drinking – and could backfire altogether. “So much of the story and identity of brands is conveyed through their packaging, and if you remove that, customers are more likely to shop purely on price, driving customers to drink cheaper quality spirits and possibly encouraging excess,” he explains.
The Scotch Whisky Association (SWA) supports Vachon’s stance. The trade body attributes much of the category’s global success to its brand building ability, with packaging playing a crucial role in highlighting the quality, craft and heritage of Scotland’s distilleries. Take that away, and the SWA envisions detrimental effects not just to the category, but to the wider economy. “There is no evidence to suggest plain packaging would have any impact on reducing harmful drinking,” says a spokesperson for the SWA. “Undermining these brands through a move to plain packaging would harm the UK economy, the balance of trade, as well as the Scotch whisky industry.”
DESIGN AGENCIES CONCERNED
It’s not just the alcoholic beverage industry that would bear the brunt of law changes – there are multiple offshoot sectors that heavily rely on collaborations with spirits brands. Design agencies are a prime example and are equally concerned about the knock-on effect a ‘one size fits all’ packaging and labelling approach could have on their businesses.
Packaging design company Stranger & Stranger argues that branding doesn’t make people drink more. “We know we can increase the sales of brands using packaging, but that doesn’t mean we’re making people drink more, just switch from one brand to another,” stresses Kevin Shaw, founder of Stranger & Stranger. “We can increase price points and the perceived value of a brand even if the liquid remains the same – but that doesn’t mean we’re making people drink more.”
Fellow design agency Nude Brand Creations agrees, and believes the key to reducing harmful drinking will be down to education, not legislation. “There’s an opportunity to use brands to educate consumers through brand designs, rather than taking away the power to help and advise people by legislating against packaging,” says Tom Hearne, director of Nude Brand Creations. He adds that plain packaging rules would have “a huge impact on our business. With tobacco, it’s still unclear exactly the impact plain packaging is going to have. It would be silly to transfer it to other sectors before seeing what impact it has had on tobacco”.
Hearne is also concerned about stifling innovation should the law change – an apprehension that’s also shared by Brand Finance’s Haigh. “If you limit the ability to distinguish on branding and marketing, you remove the ability to innovate,” says Haigh. “The flow of new products and innovation would dry up, and the big guys would dominate and be commodity producers of whatever the products are. It’s bad for business, bad for the government, and bad for creativity.”
He says new brands would suffer if plain packaging became widespread, as many smaller, startup companies simply don’t have the budget for grand marketing initiatives, and instead rely heavily on their branding. Joe Heron, owner of brandy producer Copper & Kings, agrees: “Packaging is the most important tool to engage the consumer at point of purchase for smaller companies with fewer resources than larger companies. In reality, it is the single most important consumer-engagement tool for everyone. Period. Without it, there is no vehicle to establish the product proposition and reason for being.”
How likely, then, do those in the drinks industry think it is that plain packaging will cross over to spirits? Several industry members feel that alcohol is different from tobacco, as the latter in any quantity is harmful not only to the smoker, but to those nearby too. Hearne says: “I would hope that it’s not likely to happen, but there will always be certain voices that campaign for plain packaging. Even if it doesn’t come in the near future, it will always be something that’s debated.
“I just hope the time is taken to evaluate the positives versus the negatives to try and find the best solution, rather than implement what’s used elsewhere even if it’s not tried and tested.”