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Marketing restrictions pose $168bn risk to spirits

The global spirits sector faces losing US$168 billion if restrictions on marketing are enforced, a new report has found.

Diageo spirits on back bar
Smirnoff owner Diageo is set to lose 71.6% of the added value that its brands contribute to the business

The Brand Finance Marketing Restrictions 2021 report analysed the impact of marketing restrictions in general on the alcohol, sugary drinks, savoury snacks and confectionary categories.

The new report builds on previous Brand Finance studies in 2017 and 2019 that looked at the potential impact of plain packaging regulations on the same categories.

For the 2021 report, Brand Finance examined nine brand owners: Diageo, Pernod Ricard, PepsiCo, Heineken, AB InBev, The Coca-Cola Company, Treasury Wine Estates, Nestlé and Mondelēz International.

Brand Finance said marketing restrictions can range from the need for health warnings, introduction of advertising rules and imposition of targeted taxation, to interference in visual branding and plain packaging.

The introduction of plain packaging and limitations on advertising damages how a brand differentiate itself from others in the market, Brand Finance said.

‘Catastrophic’ for brands

David Haigh, chairman and CEO of Brand Finance, said: “Brands are integral to how the world operates. In times of crisis, brands – especially those most valuable and strongest in their categories and markets – become a safe haven for capital.

“Well-managed, innovative, and reputable brands are what the global economy turns to in the hour of need. Severe marketing restrictions are catastrophic, not only for brands, but for all stakeholders, from consumers and society, to investors and governments.”

If restrictions and bans were enforced, Brand Finance predicts the value that brands contribute to the overall business of these nine companies would fall from US$553 billion to US$286bn, with overall enterprise value dropping from US$1394bn to US$1127bn.

The nine companies could each lose nearly a quarter of their enterprise value on average and more than 50% of brand contribution, Brand Finance found.

Major alcohol players, such as Diageo and Pernod Ricard, could face 100% revenue exposure if plain packaging and limited advertising rules are implemented globally because their portfolios consist entirely of products that would be affected by the laws.

Diageo is set to lose 71.6% of the added value that its brands contribute to the business – more than any other company analysed in the report. In comparison, Absolut owner Pernod Ricard could potentially lose 27.4%.

By alcohol category, spirits brands stand to lose the most, at US$168bn by brand contribution value, the report found. In comparison, beer could lose US$105bn and wine could lose US$12.7bn.

In terms of the enterprise value at stake, wine would take the greatest hit at 34.8%. Beer and spirits could record 22.7% and 21.4% potential losses in enterprise value, respectively.

Last month, Brand Finance released its annual ranking of the world’s most valuable spirits.

The world’s most valuable alcoholic drinks brands could cumulatively lose up to US$33bn in value as a result of the Covid-19 pandemic, according to a Brand Finance report last year.

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