Consumer brands cull makes room for global labels to grow

The demise of the greats, such as Heinz salad cream, has less to do with poor demand than making way for brands with international appeal, says George Pitcher

It is without doubt a tasteless comparison, but I couldn’t help noticing that when last week the US House of Representatives passed a bill making it a federal crime for doctors to assist patients who choose to die, about the same time major consumer-brand companies were deciding that nature couldn’t be relied upon to take its course and, therefore, some great names would have to be put out of their misery.

The Financial Times even had a solemn leader headlined “Choosing death” on the vexed issue of euthanasia next to a feature illustrated by the Grim Reaper scything through consumer brands.

I’m not remotely suggesting that there is, or should be, a comparison between terminating the life of an ancient and much-loved brand of starch and killing off the granny who chose to use it.

I just think there’s a resonance in the euthanasia debate for marketers of products – the bottom line is that it’s better to kill off a great brand than to let it suffer unduly. Because the suffering of the great brand is not worth the suffering it causes its relatives in the holding company’s family of brands. In short, the brand marketer can – and should – play God precisely in the fashion that physicians in Oregon should not.

Apparently, the old-biddy brands that are being put quietly to sleep include Pears soap, Cinzano vermouth, Findus frozen foods, Heinz salad cream and Milton sterilising fluid. The lethal injections are being applied by the likes of Nestlé, Procter & Gamble, Diageo and, most notably, Unilever, which has undertaken to cut its global portfolio from some 1,600 brands to just 400.

I think that this process is symptomatic of a growing internationalism that is redefining the very nature of branding as a discipline. That’s a macro-issue, more of which in a moment. At the level of the micro-issue, the reasons why these companies are culling some of their best-known brands appear to be fairly straightforward.

It has emerged that, among the great consumer-brand houses, fewer than 20 per cent of brands are responsible for about 80 per cent of sales volume and some 90 per cent of profits. Allied to that stark commercial fact is a growing unwillingness on the part of major retailers to clutter their gondolas with a wide variety of brands. Like shrubbery in overcrowded borders, you need to prune and manage the plants to enable them to flourish and supply colour – and some of the bigger bushes need to be dug out.

Furthermore, the manufacturers and retailers who do the gardening are unwilling to transplant their roots into anyone else’s plot, for fear that they will flourish and attract attention away from their own blooms. The answer has to be the compost heap, rather than the market garden. Hence the great, old, well-established brands are being destroyed, rather than sold.

Not that it would be a doddle to sell them in any event. As much as 30 per cent of a brand’s retail price can be consumed by its marketing. It follows that the margins are widest on products that are not being heavily marketed. Sellers consequently need to achieve high enough prices to compensate for lost profit streams; buyers are reluctant to overpay if they foresee having to provide extensive marketing support to maintain the brand’s profitability.

Hence the cull among the big consumer brands. But I believe the bigger picture relates to the globalisation of business. It’s true that economies of scale mean that the truly global brand marketing group will increasingly want to limit the fragmentation of its brand in different markets. Nestlé, for example, has been marketing Findus in Europe and Stouffers frozen food in the US.

But the truly global brand isn’t built on the consolidation of a diversified brand portfolio. It is built by intensive investment over a period of many years. That is true of Coca-Cola, McDonald’s or Nike – and it is true that the Americans have been better and more consistent at that investment than anyone else.

And global is where branding is going like never before. It was put to me by a major fund manager in the City the other day that the megabrands of the new millennium are not consumer goods at all, but media owners. He pointed to the recent brand valuations attached to Internet stocks such as Yahoo! and Amazon, “which even my auntie knows the names of”.

This further implies a breakdown of nationality as a brand value. Increasingly, national brand values will be confined to the political arena, for purposes of relatively narrow political leverage. Look at British beef and the developing trade war with France and Germany for evidence of that.

The trend goes way beyond consumer goods. The attempt by British Airways to develop a corporate identity as a global service provider, rather than a national carrier, floundered on its tail-fin designs, becoming the butt of xenophobia and contempt. That was more than a pity, because BA has been denied the opportunity for the time being to lead its market in global branding.

But that is the name of the game. And I wouldn’t be at all surprised if that’s the big picture that Unilever, Diageo, Nestlé and the rest are addressing as they kill off the old to make way for the new.

George Pitcher is a partner of issue management consultancy Luther Pendragon

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