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Contents
1. Introduction
2. Methodology
3. Key issues
4. Biggest Movers: Going UP, Going DOWN
5. New entrants, No shows
6. The Top 10
7. Top sectors
8. Biggest brand owners
9. Country of origin
10. The Top 100

1. Introduction
The dynamic between low price, driven by own-label, and high quality, driven by more premium brands, is exacerbated in times of economic uncertainty. Brands that are able to segment their product offerings to attract value conscious shoppers while maintaining brand equity are likely to be best able to withstand the coming storm. As competing with own-label will become more important than ever, brand owners should focus on the specifics that differentiate their brands and provide products to match.

All eyes are on the economy. 2008 has seen the rise of discount retailers such as Aldi and Lidl, neither of which have a history of stocking many mainstream brands. With distribution being potentially stunted, brands will have to work harder to maintain their value. This study calculates the value of the UK’s leading grocery brands in their current use.

Intangible Business specialises in valuing brands and other intangible assets for management, litigation and financial purposes. This report, now in its third year, highlights which brands have maintained their equity this year, which have lost some and which have gained. There are also a number of new entrants proving that with adversity comes opportunity.

2. Methodology
Brand values are a reflection of a brand’s ability to generate future income. It is a forward looking study that uses historic performance and future trends to predict future activity. Up to five years of publicly available historical sales data was gathered for 150 of the country’s biggest grocery brands. To determine the strength of the brands, each brand was also scored on nine measures of brand strength, provided from qualitative panel data. Using this data, each brand was then valued using the relief-from-royalty methodology to produce the top 100.

Definitions of components of brand strength

Hard measures
Share of market: volume based measure of market share
Brand growth: projected growth based on 3-5 years historical data and future trends
Price positioning: a measure of a brand’s ability to command a premium
Market scope: number of markets in which the brand has a significant presence

Soft measures
Brand preference: a measure of relative pre-disposition or spontaneous selection of a brand
Brand awareness: a combination of prompted and spontaneous awareness
Brand relevancy: capacity to relate to the brand and a propensity to purchase
Brand heritage: a brand’s longevity and a measure of how it is embedded in local culture
Brand perception: loyalty and how close a strong brand image is to a desire for ownership

Calculating brand value

The actual brand valuation calculation is relatively straight forward. It attempts to derive the amount the brand owner would be willing to pay for its brand if it did not already own it. This approach is called the relief from royalty methodology as it calculates how much the brand owner is relieved from paying by virtue of owning the brand. The more complicated parts are the components that contribute to the calculation. These three stages illustrate the process, simply:

1. Forecast sales
These brands have been given indefinite lives as they are all market leaders, steeped in heritage and with financially robust owners. The compound annual growth rate (CAGR) is adjusted to reflect the brand’s long term ability for growth. This reflects more accurately a brand and its sector’s long term growth prospects based on its current and historical performance.

2. Royalty rate
Each brand is given a score out of ten based on the measures identified above, 0 = low, 10 = high. This results in relative brand strengths for each brand as a percentage. This score is then positioned within a royalty rate range to determine a unique royalty rate for each brand. The royalty rate ranges differ for each sector based on the sector’s average profitability and level of brand contribution. For example, a royalty rate range for Soft Drinks sector is between 0% and 20% at retail level as the brand contributes about 80% to the sale price – the remaining 20% being ingredients, distribution, manufacturing etc. The range for a sector such as Bakery would be lower as the cost of ingredients is greater and the brand has a lower contribution. The royalty rate appears to be a simple percentage but in fact this hides the depth of understanding required to determine a rate that reflects accurately the profit/cash flow generated by the brand alone – separate from other elements of product delivery.

3. Discount rate
Future sales are then multiplied by the royalty rate and reduced at the relevant tax rate. They are then multiplied by a discount rate to calculate the net present value of those future cash flows. The discount rate reflects the time value and risk attached to those cash flows and for the purpose of this exercise has been left at a flat 9% as these are relatively low-risk, established brands in a relatively stable economic environment and market.

Testing
Results are tested and verified by sense-checks, such as to comparable commercial transactions, and referenced to proprietary information on the value of leading brands, which all share similar characteristics of value cash flow generation.

3. Key issues

Own label
Own label continues to be a major threat to brand owners. Distribution is entirely at the control of the major supermarket groups, soon to be reduced by the acquisition of Co-op. In addition to this, discount retailers such as Lidl and Aldi, which stock significantly fewer products with few spaces available for non house brands, are growing in market share. Own label has always been a threat, but never more so than now. If the major supermarkets adopt a similar strategy to compete with the discounters, many brand owners will be squeezed out of the UK retail market.

Key competitors
Coke vs Pepsi, John West vs Princes, Warburtons vs Hovis… Several one-on-one battles are being waged with one brand benefiting at the direct expense of another. In some instances shelf space dictates listing opportunities with own label brands only leaving room for one main external brand, squeezing out the competitor.

Discounters
Aldi and Lidl are taking advantage of the economic downturn and gaining market share. With their lower cost base, driven by fewer staff, fewer product lines, fewer non house brands, lower rents and economies of scale from their international divisions, they are the current stars of 2008. This success has not gone unnoticed. Their competitors are adjusting their strategies accordingly, refocusing on value and price which may stem the migration to the discounters.

Economic malaise
2007/2008 was probably the peak of what we are going to see for the next few years. Sales are likely to fall in many categories and for many brands. This will inevitably lead to lower brand values. However, those that are able to steal market share from their fallen rivals will see their brand values rocket once the economy returns to growth.

4. Biggest Movers: Going UP

1. Kettle Chips +20 places
Up a very impressive 20 places with a brand value up 28% to £64m, Kettle Chips is fast becoming a major challenger to its more established rivals Walkers, McCoy’s and Pringles. Sales exceeded £60m buoyed in part by the broadened product range with the introduction of more convenient, single serve packets. With only £3m between Kettle Chips and Pringles, next year could well see Kettle Chips usurp Pringles’ bronze position.

2. Mars +18 places
Moving up 18 places in this year’s top 100 grocery brands, Mars enters this year at number 53. Mars’ brand value increased by 45% to £92m, up from £63m in 2007. Constant investment in brand advertising helps keep Mars one of the nations’ favorite chocolate bars, a position it is expected to hold onto in 2009.

3. Innocent +16 places
The success of increased distribution and new product lines are testament to the equity invested in the Innocent brand. Innocent was the fastest growing grocery brand by sales in 2007 with sales up by 47%. The value of the Innocent brand exceeded the growth of its sales, up 50% to £139m in 2008. Innocent moved up 16 places to number 32, beating dozens of household stalwarts which have been around for generations.

4. Haribo +16 places
The German confectionery brand, Haribo, had an impressive year. The value of its brand increased 25% to £65m in 2008, up from £52m in 2007. This growth in brand value propelled the brand up sixteen places to number 73. Its accessible and fun range of products continue to attract interest, with sales up 27% in 2008.

5. Capri Sun +15 places
Its convenient and differentiated format combined with its focus on 100% natural fruit juice has helped fuel Capri Sun’s growth in brand value of 24% in 2008. This moves the brand up 15 places to number 78 in this year’s top 100 grocery brands report – the fifth biggest move. With sales up 24% as well, helped by its wide range of flavours, Capri Sun is set to repeat its impressive performance next year.

Biggest Movers: Going DOWN

1. Bernard Matthews -38 places
After the recent disastrous bird flu and health scares surrounding Bernard Matthews it is perhaps no surprise that its brand would be affected negatively. Bernard Matthews only just squeezed into this year’s top 100 at number 97, down 38 places. The value of the Bernard Matthews brand fell 28% to £54m. The brand still retains significant equity despite its troubles so with new marketing investment the brand has the capacity to increase its value.

2. Tate & Lyle Sugar -17 places
Tate & Lyle Sugar’s sales seem to have come off the boil. Silver Spoon’s sugar also fell this year, a sign perhaps that consumers can no longer distinguish between these branded products and own label – or if they do, they are not prepared to pay a premium for it. Adding to this are negative health associations with sugar, putting people off. Tate & Lyle Sugar’s brand value fell by 9% to £59m and dropped 17 places.

3. Princes -10 places
Princes is losing the battle of the tinned tuna to John West. The former’s brand value fell 11% in 2008 to £85m and dropped 10 places to number 57 in the top 100. As discussed earlier, it is getting increasingly difficult to secure supermarket shelf space, leaving room for only one external brand in some categories. Princes is currently losing out to its rival and needs to come up with a new strategy to reverse its decline.

4. Birds Eye Frozen Veg -8 places
Down 8 places to number 84, Birds Eye Frozen Veg is languishing dangerously close to being relegated out of the top 100 next year. Ironically, this is not because it is doing particularly badly. In fact both its sales and brand value are up 2% to a brand value of £61m. It is just not growing as fast as its other grocery rivals.

5. Magnum -8 places
Another victim of the success of others rather than having any particular problem, Magnum lost 8 places in 2008, down to number 96. Its brand value, however, increased 2% to £54m with its sales up 1%. Indulgence is hard for the supermarkets to emulate with own-label products, or at least ice-cream is not a category it has yet focused on. For now, Magnum enjoys having a strong and valuable brand which is set for continued growth.

5. New Entrants
1. SMA Nutrition Baby Milk, £68m, No.68
2. McVitie’s Digestives, £60m. No.85
3. Snickers, £58m, No.88
4. Cravendale, £55m, No.94
5. Young’s Fresh Fish, £54m, No.95
6. Cow & Gate Baby Milk, £51m, No.100

 

No Shows
1. Goodfellas, £51m, No.101
2. Birds Eye Frozen Ready Meals, £51m. No.102
3. Clover, £50m, No.103
4. McVitie’s Cakes, £48m, No.107
5. Weight Watchers Ready Meals, £47m, No.110
6. Kellogg’s Cornflakes, £45m, No.112

6. The Top 10

1. £1,151m Coca-Cola
Coca-Cola continues to dominate not just the carbonated soft drinks category but the whole grocery sector. Not only is it the biggest grocery brand by sales but also by brand value. Although its sales increased slightly its brand value remained largely flat, falling by just 1%. This is in part due to its brand strength rating falling by 2% and in part due to the total market for carbonated soft drinks reaching maturity with growth slowing. The Coca-Cola brand is still rated as the strongest by brand score, as it was last year, testament to its ability to appeal to all social demographics.

2. £583m Warburtons
It is rare for a brand to continue to grow from a large base at such a pace as Warburtons. Warburtons sales increased an impressive 13% since last year and its brand value also increased, albeit at a more conservative rate of 11%. Distribution continues to grow in the south of England giving more people greater access to the brand, at the expense of other more established brands such as Hovis and Kingsmill. Its brand score also increased in 2008, up 8% to 71%.

3. £457m Lucozade
Lucozade takes the bronze medal in 2008 for the first time, knocking the incumbent Cadbury Dairy Milk off the number three spot. The value of the Lucozade brand increased 14% in 2008 with its brand score up 11%. The range of product flavours, variants and formats combined with consistent association with sports differentiates it from the competition, enabling it to dominate the functional sports and energy drinks sector.

4. £451m Cadbury Dairy Milk
Popular advertising contributed to Cadbury Dairy Milk’s growth in brand value in 2008. Its brand score increased 5% helping fuel growth in brand value of 2% to £451m. However, this was not enough to secure its third place this year and fell into fourth place. Next year, with continued equity from its advertising, the brand value may well increase accordingly.

5. £415m NESCAFÉ
NESCAFÉ moves up one position this year to be the fifth most valuable grocery brand in the UK. Following a sales growth of 5%, its brand value increased 10% to £415m propelled also by its brand score which was judged to be 9% stronger. Innovative brand launches maintains consumer interest in the brand helping reverse the declines NESCAFÉ saw in 2007.

6. £366m Hovis
Hovis lost out to competition from own label and the seemingly unstoppable growth of Warburtons in 2008. Its brand value lost 8% in value from 2007 when it was worth £395m. Renewed investment from owners Premier Foods and a brand and product relaunch may reverse its decline. Heritage is the Hovis’ strength so if the product quality matches consumers’ expectations we may well see Hovis rise again.

7. £354m Robinsons
A 6% increase in brand value helped Robinsons maintain its seventh position in 2008. Robinsons’ 185 year history has engrained the barley water and fruit squash drink as the nation’s favourite and its long association with Wimbledon tennis helps grow its awareness and relevance with new generations. With innovative extensions such as ready-to-drink options, Robinsons is set to increase its brand value next year.

8. £317m Andrex
Andrex is the most valuable grocery brand in the household category by a long way. It is a household staple throughout much of the UK with sales growing at a pretty constant near 3%. The value of the brand responded accordingly, up 2% since 2007. In the Kimberly-Clark stable the brand is guaranteed considerable distribution which, combined with the puppy creative devise, helps generate consumer demand.

9. £267m Red Bull
Red Bull is a unique phenomenon. Largely a one product independent company it created and dominates a new category. Its brand value in the UK increased 19% in 2008 up from £232m in 2007, following an even more impressive 22% rise in sales. By not wavering from what it does best, Red Bull is a great example of constant and consistent marketing communications, rewarded by moving up three places, entering the top 10 for the first time.

10. £268m Heinz Baked Beanz
Falling one place in the top 10 in 2008, Heinz Baked Beanz just squeezed into the top 10, knocking out incumbent Pepsi. The value of the Heinz Baked Beanz brand increased just 1% up from £264m in 2007 to £268m in 2008. Heinz Baked Beanz has withstood the potential threat from the likes of Branston, leaving it to compete primarily with own label.