Why brands continue to surf the recession

Own-brands may be de rigueur right now, but they will never get talked about in the White House…

Maybe every penny does count right now, but that doesn’t mean to say we are in helpless thrall to value lines and own-label supermarket products. In fact, quite the contrary. For a variety of reasons, the well-defined, well-supported brand is in rude good health.

Exhibit A, you might say, is Reckitt Benckiser, which not long ago reported a 40% increase in pre-tax profits for the first half of the year on the back of a storming performance from such power brands as Dettol, Cillit Bang, Finish and Nurofen.

RB chief executive Bart Becht has said it before, and will no doubt say it again: if you pitch the product mix right, you can roll back the seemingly inexorable advance of own-label. He himself cited Lidl in Ireland which, due to consumer demand, was forced to stock more branded products. And also the case of Mercadona in Spain, whose attempt to go the opposite way has been disastrous.

Equally compelling evidence, though of a psychological rather than commercial nature, was on display at the White House recently. President Barack Obama, it may be recalled, organised a “let’s have a beer” summit to defuse an ugly racial incident that he had, unwittingly, exacerbated. The key issue, pre-summit, was: which brand of beer will the three protagonists drink?

After much soul-searching, it seems Henry Louis Gates Jr, the black Harvard professor and personal friend of Obama – who was arrested while breaking into his own house (he had lost his key) – opted for Red Stripe, a Jamaican beer. Sergeant James Crowley, the white arresting officer, decided he wanted Blue Moon. This is a so-called “craft” beer and was presumably selected to highlight Crowley’s, er, discriminating and thoughtful nature. And Obama? Well, he went for all-American Bud Light, in an effort to please all of the people all of the time (though he conspicuously failed to please the brewers of Miller Lite, Bud’s mainstream competitor).

One of the interesting things about these brands – beyond the carefully nurtured investment that enables them to project such personal messages – is who owns them. Bud, these days, is no more American than I am. It is owned by InBev, a Belgian listed company run by Brazilians. Red Stripe may have originated in Jamaica, but it has long been owned by London-based Diageo, the world’s biggest drinks company. Blue Moon, the product of a synthetic historicism not unlike that of the “Ploughman’s Lunch”, belongs to Molson Coors, which part-originated in Canada. Molson Coors, in turn, has a joint US venture – Miller Coors – with SABMiller, the global brewer that started life in South Africa. And finally, SABMiller is the owner of, yes, Miller Lite, the all-American brew that Obama turned down.

And the point I’m making? As ownership becomes more concentrated, so brand different­iation catering to local susceptibilities is corres­pond­ingly more important. It’s the ultimate encapsulation of the adage, “Think global, act local”.

Multinational brand owners are having to become more circumspect about the way they project their global power for two primary, but interconnected, reasons.

The first is that, although most global brands are still American in origin, there are limitations (outside the US market) to the appeal of Americana, with its connotation of “informal imperialism”. As, to quote but two examples, Coca-Cola and McDonald’s have found to their cost over the years.

And it’s not only US global brands that encounter this kind of problem. Market-leading Nokia mobile phones are being boycotted in Iran by consumers sympathetic to the election protest movement. Sales of the handsets have fallen by up to half because the Finnish company operates a joint venture with Siemens – Nokia Siemens Networks (NSN) – which sells communication monitoring equipment to the Iranian government.

The message is, don’t put all your eggs in one brand basket. Acquiring a widely diversified brand portfolio is a good way of limiting exposure to local protest movements if you are a multinational company.

A second reason for brand diversification is that world economic power is shifting, probably permanently, towards the BRIC countries – Brazil, Russia (perhaps less so), India and China – plus other emerging economies such as Korea, Taiwan and Singapore. Increasingly powerful consumers in these countries frequently favour their local brands over international ones.

Let’s take one example of this – the most powerful one, China. According to the National Bureau of Statistics of China, Chinese companies have in the past ten years increased their market share more than sevenfold, from 3% to 23%; market penetration by foreign multinationals, on the other hand, has slowed dramatically. TV-maker Konka, home appliance manufacturer Haier and sportswear retailer Fujian Peak are all examples of brands making a name for themselves, while personal computer manufacturer Lenovo, having acquired the IBM brand licence, is a global multinational in its own right.

As a result, the multinationals themselves have been on a shopping spree. Diageo, for example, is chasing a stake in India’s biggest drinks company, United Spirits (of Kingfisher fame). Last year, PepsiCo paid nearly £900m for Lebedyansky, Russia’s biggest soft drinks company, and Unilever bought its biggest ice cream brand, Inmarko. Coca-Cola, meanwhile, narrowly missed acquiring China’s top juice maker, Huiyuan, for $2.3bn after the Chinese competition authorities blocked the deal.

Wolff Olins, the brand identity specialist behind Orange and the London 2012 Olympics logo, recently came up with a few other brands that buyers might wish to put on their shopping list. They include Juan Valdez Café, a Columbian coffee chain; Almarai, a Saudi dairy and fruit juice company; and ChangYu, China’s biggest wine producer.

A case, perhaps, of hurry while stocks last.

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