Plain packaging could cost drinks industry $430bnBy Nicola Carruthers
The global drinks industry could lose more than US$400 billion if plain packaging regulations come into force, according to a new report.
Valuation consultancy Brand Finance looked at the potential financial impact a plain packaging regulation could have on four industries: alcohol, confectionary, savoury snacks and sugary drinks.
The Plain Packaging report builds on Brand Finance’s original 2017 study, which predicted a loss of almost US$300bn for the global drinks sector.
David Haigh, CEO of Brand Finance, said: “Since we produced the first Brand Finance Plain Packaging report in 2017, a number of other countries have either implemented – or legislated for – plain packaging for tobacco products.
“With health advisors labelling obesity ‘the new smoking’, it is not surprising that there have been repeated calls for this type of legislation to be expanded into the food and drinks sectors. It is obvious, however, that this would severely damage these companies’ business values.”
According to the group, eight major brand-owning companies could lose a total of US$234bn should plain packaging be mandated for other FMCG products. This is nearly US$50bn higher than Brand Finance’s original estimate in 2017. The alcohol and sugary drinks categories were deemed the “most vulnerable”.
Looking across the global drinks industry, Brand Finance predicts a potential loss of US$430.8bn.
Brand Finance claims that alcoholic drinks producers Heineken, AB InBev, and Pernod Ricard would see 100% of their revenues exposed to the legislation, jeopardising their current business models.
French drinks firm Pernod Ricard, owner of Absolut vodka and Jameson Irish whiskey, has the largest proportion of enterprise value at stake (36.2%). Enterprise value is the company value, as opposed to market capitalisation.
Beer giant AB InBev and soft drinks maker The Coca-Cola Company would lose more than a quarter of their enterprise value, according to Brand Finance. Both firms have the highest absolute value at risk: US$64.6bn and US$57.2bn, respectively.
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”.
Haigh added: “However, the predicted loss of brand contribution to companies at risk is just the tip of the iceberg. Plain packaging would also lead to losses in the creative industries, including design and advertising services, which are heavily reliant on FMCG contracts.”