Economic downturn wipes US$67 billion off top global brands’ valuation

Brand Finance plc, an independent brand valuation consultancy, has revealed the impact of recession on the top 100 global and US brands. In March 2008 Brand Finance released the 2008 version of its report on the 500 most valuable global brands. The effective valuation date was 31 December 2007, using financial forecasts for 2008 and beyond.

Since January, the economy has been hit by commodity price rises, the credit crunch, rising unemployment and tumbling share prices. As a result of this global economic crisis, Brand Finance has revisited its findings and has updated the values of the top 100 global and top 100 US brands.

The study is calculated by Brand Finance based on the widely used and technically superior ‘Royalty from Relief’ methodology, which assumes that a company does not own its brand name, and then calculates how much it would have to pay to license it from a third party.

Global trends:
•         Between January and September the enterprise value of the 100 most valuable globally branded businesses has decreased by 13.3 percent, a drop of US$1.6 trillion
•         Between January and September the brand value of the 100 most valuable global brands has decreased by 4.2 percent, a drop of US$67 billion

Sector trends:
•         As the price of oil continues to rise so does the value of leading petrochemical brands. Four of the top five brands that record an increased in brand value belong to leading brands in the oil and gas sector. These include; ExxonMobil (19.4 percent), BP (18.3 percent), Chevron (17.9 percent) and Shell (12.8 percent)
•         The only other sector to record a significant increase in overall brand value is healthcare, suggesting that despite a decrease in spending, consumers are prioritizing health and well-being. Johnson & Johnson outperforms its competitors by jumping an impressive 16 places to 84 in the table, illustrating the trend across the sector
•         The retail sector’s total enterprise value has risen by 9.1 percent. During the current recession low-priced retailers are leveraging their position by providing customers with value for money goods
•         Everyday consumer brands have benefited as consumers trade-down and rediscover good value products. McDonald’s is an example of a brand that has benefited from successful re-positioning as a healthier, value for money option. Trading on its heritage and consumer brand equity, McDonald’s brand value increased by 9 percent to US$23,968m. On the other hand, brands such as Starbucks struggle to gain share of (shrinking) wallet as consumers cut unnecessary spending habits and turn to more essential goods

Brand rankings:
•         Wal-Mart has overtaken Coca-Cola to become the most valuable global brand in the BrandFinance500. The value of the brand has increased 9 percent since December, to US$42,567m driving a 23.5 percent increase in Wal-Mart’s enterprise value over same period. Wal-Mart has turned the recession to its advantage by leveraging its reputation for low prices
•         CITI tumbled out of the top ten to fifteenth place with a brand value of US$24,058m (a 14 percent decrease) reflecting its poor performance in the current sub-prime crisis. This allows Vodafone to enter the top ten in ninth place as the leading telecommunications brand (with a brand value of US$26,688m) closely followed by Nokia (with a brand value of US$26,564m)

‘In the current climate, it is essential to understand the absolute value of brands and what drives their value,’ said David Haigh, CEO of Brand Finance plc. ‘The Brand Finance Global 500 report provides an insight into the effect of recession on leading brands.

‘There is clear evidence that basic, value for money brands like Wal-Mart, AT&T, Exxon and McDonalds are performing very strongly, particularly when they invest consistently in advertising and marketing. By contrast unnecessary or discretionary brands like Starbucks, Nike, Coca Cola and L’Oreal are declining in value as consumers watch their finances more carefully.

‘There is also evidence at the global level that developing world brands are growing rapidly. Samsung, Tata, Bank of China and Lukoil are all good examples of this phenomenon.’