A firm's greatest asset? A brand name
While consumers continue to flock to attractive brands, investors will tend to follow, writes Leona Nicholson
Despite the rise of own-label products by multiples and retailers, we consumers keep on believing in brands. In investing too, we also look at quality and track record (along with price) in the decision to buy or sell.
Looking back at the history of consumer brands, it is interesting to see who emerged as the early global leaders. The distinctive red colour of Coca Cola immediately springs to mind.
However, the earliest global brand is actually Gillette, when its growth was assisted by US and British troops travelling to the First World War.
Another pioneering brand was Lipton's tea, which was popular in the post-war period with its traditional teas. It is now enjoying a huge revival, particularly in iced and green teas. Contrast this with the crowded world of brands now, where thousands do battle every day for a share of the consumers' wallets.
McKinsey estimates that 350 million will be added to China's urban population by 2025 (more than the current population of the US). Many investors are accessing these growing markets by investing in multinational companies that derive a growing portion of profits from this region.
Kraft's acquisition of Cadbury in 2010 was primarily driven by Cadbury's presence in emerging markets, particularly its strong distribution channels in India.
Samsung, LG and Hyundai remind us that brands also travel east to west.
American stalwarts such as Tide, Pantene and Colgate are now regarded as local brands in China. Nike has just renewed its contract to sponsor the Indian cricket team. Engagement rings, which were never a custom in China, are now rising in popularity -- even though import taxes mean mainland Chinese pay a 40 per cent premium for a Tiffany diamond.
Unilever estimates that two billion consumers use its products every day. Over 50 per cent of the company's sales are in these faster-growth economies, with leading brands such as Knorr, Hellmann's, Lipton's and Flora.
It is also the world's largest producer of ice-cream, with well-known brands such as Walls, Olla and Magnum.
Along with Procter and Gamble (P&G), it dominates the home and personal-care market, with brands such as Persil, Surf, Omo, Tresemme, Pond's, Lynx and Dove. Proving the longevity of brands, Lifebuoy -- its distinctive pink soap -- is now used by 140 million households in India.
Diageo, owner of the Guinness brand, is the number-one premium drinks company in the world, with 40 per cent of its sales in emerging markets. It has now focused its marketing budget on its global priority brands, including Johnnie Walker red and black whiskies, Smirnoff, J&B Rare, Bushmills and Baileys.
Diageo continues to add to its brand portfolio. In May of this year, it bought the Ypioca brand, the leading liquor in Brazil. This follows the purchase of the Mey Icki raki brand in Turkey last year.
The luxury sector
BMW is one of the world's leading manufacturers of premium cars. The company's products are admired globally and are seen by many of its competitors as the benchmark for the luxury-car sector.
Last year, BMW sold more than 1.6 million cars worldwide (233,000 in China). Indeed, China is on track to become its largest market by 2020. Along with its own flagship series, BMW also owns niche brands Mini and Rolls Royce.
Investors with a longer memory will remember that BMW hasn't always enjoyed a smooth journey. In 1994 it learnt a hard lesson when it moved away from its core premium focus and bought UK volume car manufacturer Rover, selling the brand on at a loss in 2000. However, such is the strength of the BMW brand that over the long term the brand retained its trusted status.
The tech factor
As we anticipate the next
'i-move' from Apple (now the world's most valuable brand), we should remind ourselves that Steve Jobs revived the Apple brand from the brink of bankruptcy in 1997.
And at its peak in 2000, Nokia's market cap was 30 per cent greater than Samsung is today.
No brand is safe. Even Kodak failed in its bid to reinvent itself. Smart brand architects will continue to focus on innovation, supported by strong advertising and promotion.
The future of brands
Whether looking east to the emerging markets and their growing populations or building a brand based on innovation or luxury, brands can -- and do -- win.
If brands win, then investors can profit.
All the evidence suggests that consumers around the world will continue to buy based on the psychological draws of the brand, perhaps over rational thought or need.
To quote Warren Buffett: "Whether we're talking about socks or stocks, I like buying quality merchandise when it is marked down."
Investors need to consider the strength of the brand and the durability of the franchise in their own buying decisions.
Leona Nicholson is the head of the Global Fundamentals Fund at Bank of Ireland Private Banking Limited. The views expressed in this article are her own
Sunday Indo Business