UK’s top 50 brands reported 30% higher returns than FTSE 100 in 2021
Strongly branded companies recover quicker from crises and retain a stronger performance going forward, Brand Finance’s latest research indicates.
The UK’s 50 “strongest” brands delivered shareholder returns that were 30% higher than the FTSE 100 in 2021, according to analysis compiled by Brand Finance and commissioned by the IPA.
Even in the current economic climate, the top 50 brands still deliver 10% higher cumulative returns.
Brand Finance determines the relative strength of brands by evaluating marketing investment, stakeholder equity, and business performance. In 2021, EY ranked as the UK’s strongest brand with a score of 86.9 out of 100, followed by Premier Inn, Lysol, Persil and Dove.
According to the ‘Why brands matter 2022’ report, returns were significantly better for businesses in which their brands make up a higher share of their total value, meaning those that have a high brand value to equity value ratio (BV/EV). These high BV/EV brands delivered 80% higher returns than the FTSE 100 in 2021.
Meanwhile, the impact of a high BV/EV versus the FTSE 100 was strongest in 2013, 2016 and 2019, which are all years which followed a financial downturn.
Speaking ahead of the IPA Effworks Global 2022 Conference today (12 October), Brand Finance’s general manager of UK consulting, Annie Brown, says businesses need to continue investing behind their brands during the current economic turmoil.
“Those brands who keep their nerve and ensure the strength of their brand are more likely than ever to come through the other side from any disruption not only quicker, but stronger and more profitable,” she says.
In April 2020, shortly after Covid-19 took effect globally, two of the world’s biggest FMCG companies, Procter & Gamble and Coca-Cola, took different approaches to marketing spend. P&G doubled down on spending, while Coca-Cola backed away. As Marketing Week columnist and Mini MBA founder Mark Ritson pointed out in a column last year, this decision bore out in the companies’ financial results, where the former saw revenues surge and the latter saw them slump.
P&G and Coke’s pandemic performances prove it: You don’t cut ad spend in a crisis
“Covid caused every brand to question itself. The brave, the clever and the ones with long memories doubled down. Those with lesser budgets, shorter memories or a lower grade of leadership cut back and paid the price,” he wrote.
Investing in brand could also help businesses save on debt. Globally, strongly branded companies pay at least 3% less on debt, Brand Finance’s research suggests, though for the UK the figure is slightly lower at 1.7%.
For example, for Kingfisher, which owns brands including B&Q and Screwfix, an increase in brand strength across its portfolio could mean a saving of up to £65m a year.
Intangible assets, such as intellectual property, goodwill and brand recognition, account for over half of total organisation value, Brand Finance estimates. Marketing-related assets account for at least one fifth of organisations’ intangibles.
According to recent analysis by McKinsey, the top growing companies invest 2.6 times more in intangibles than low growers across sectors. This gap rises as high as five or seven times more in some sectors, including financial services.
“We have always believed that intangible assets are a critical pillar of competitive advantage and value creation,” says the IPA’s director of marketing strategy, Janet Hull.
However, brands in the UK are lagging in their investment in intangibles. The total value of UK intangibles dropped in 2020, while the US, China, and Germany also saw growth.
The total value of British brands is also growing at a slower rate than the global average. The value of the top 50 global brands have grown 17% between 2021 and 2022, but the top 50 UK brands have grown just 11%. In 2011, the global top 50 and UK top 50 grew at the same rate.
The same trend was seen in Kantar’s ranking of the value of UK brands last month. According to the BrandZ report, the value of the UK’s top brands risks stagnation, as brands in the top 75 have grown by just 1% in total value since 2021, well behind the global ranking which grew by 23%.