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Wednesday 18 September 2019

Top brands can be big winners - but it's vital to do research first

Investor

Nestle Buys Controller Stake In Blue Bottle Coffee...SAN FRANCISCO, CA - SEPTEMBER 15: The Blue Bottle Coffee logo is displayed on a cup of Blue Bottle coffee on September 15, 2017 in San Francisco, California. Nestle announced its plans to acquire a 68% stake in Blue Bottle Coffee in a deal estimated at $700 million. (Photo by Justin Sullivan/Getty Images)...A
Nestle Buys Controller Stake In Blue Bottle Coffee...SAN FRANCISCO, CA - SEPTEMBER 15: The Blue Bottle Coffee logo is displayed on a cup of Blue Bottle coffee on September 15, 2017 in San Francisco, California. Nestle announced its plans to acquire a 68% stake in Blue Bottle Coffee in a deal estimated at $700 million. (Photo by Justin Sullivan/Getty Images)...A

Leona Nicholson

Investors are often drawn to companies which own strong and popular brands. It's important however that investors look at the reputation and track record of brands when deciding whether to invest in them or not.

The earliest global consumer brand is Gillette. The growth of that brand was assisted by US and British troops travelling to the First World War. Another pioneering brand was Horlicks - which was first patented in the US in 1873 as a malted nutritious drink for infants by two British brothers. Today its largest market is in India.

There are some interesting trends occurring in the emerging markets in the East which investors should take note of.

McKinsey estimates that if current trends hold, China's urban population will reach 1bn by 2030 or 70pc of its population - from 59pc today. Similar trends are expected in India, albeit from a lower urban base. Many investors are accessing these growing markets by investing in multinational companies who derive a growing portion of profits from this region.

Chinese internet titans Tencent and Alibaba have developed their own 'walled garden' of brands such as 'Wechat' and 'Alipay'. However Samsung, Huawei and Uniqlo are also reminders that brands travel east to west. These growing economies will play an increasingly important role for brands and investors over time.

There have also been interesting developments in food and beverages, and in cars.

Nestle, for example, is the world's largest food and beverage company with well-known brands such as KitKat, Nescafe and Perrier. Almost 60pc of its sales come from the growing economies of India, China and Brazil. Nestle is a market leader in pet food, infant formula and of course coffee where it holds an estimated 25pc market share. The coffee market (fresh and instant) is worth $83bn (€73bn) and has grown 6pc a year in the last five years, according to Euromonitor. To build on the enormous success of Nespresso, Nestle has expanded its premium portfolio with the acquisition of Blue Bottle - an upmarket chain of hipster coffee shops with an average price of $5 per cup.

Aston Martin describes its niche luxury cars as 'automotive art'. Its DB sports car has been admired for its speed and technology. Aston Martin aims to double production over the next five years by moving into the SUV category. Aston Martin has been rescued from bankruptcy seven times since 1912 and has had multiple owners, including Ford, but such is the strength of its marquee brand, it has just listed on the London Stock Exchange with an eye-watering valuation.

Investors must however remember that no brand is entirely safe and can falter.

With a market cap close to $1trn, Apple is the world's most valuable brand. However, Steve Jobs revived it from the brink of bankruptcy in 1997. Furthermore, even though we are taking more photos than ever, Kodak failed in its bid to reinvent itself. Toys R Us, once a category leader, recently filed for bankruptcy. Brand reinvention is clearly an important way to stay relevant for consumers and attractive for investors.

Whether looking east to the emerging markets (and their growing populations) or investing in a luxury or innovative brand, brands can and do win bringing a healthy return for investors. It's crucial though that investors do their research - and consider the durability of a brand - before investing in it.

  • Leona Nicholson is head of investment management at Bank of Ireland Investment Markets
  • Any investment commentary in this column is from the author directly and should not be seen as a recommendation from The Sunday Independent

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