Marketing restrictions could cost food and drink players $500 billion

Marketing restrictions could be set to wipe billions off the enterprise value from major brands in the alcohol, confectionary, savoury snacks, and sugary drinks industries. After the introduction of marketing restrictions for tobacco products, there have been repeated calls to extend the legislation to other products which have negative impacts on the health of consumers.

The Tobacco Advertising & Promotion Act 2002 was enacted in November 2002 in the UK, with most advertising and sponsorship being prohibited from February 2003. That year, around 26% of all UK residents smoked – but that figure has declined to just over 14% by 2019 – exposing far fewer people to the potentially lethal effects of long-term tobacco use. Now, many health experts are suggesting similar marketing restrictions in other industries may have similar benefits.

According to the British Heart Foundation, around 31,000 heart and circulatory deaths each year are attributed to obesity – similar in proportion to the impact of smoking. In order to dissuade consumers from purchasing products linked to obesity, in June 2021, the UK Government confirmed plans to forge ahead with plans to restrict the advertising of foods which are high in fat, salt, and sugar. This commitment follows calls by us and a number of other leading health organisations for action. Among the measures being adopted are a 9pm watershed for junk food adverts on TV to reduce their influence on children, as well as further restrictions on online advertising.

Interestingly, the new measures are not being met with a great deal of resistance from marketers in the UK. A poll from the Chartered Institute of Marketing found that just 26% of the UK’s top 50 marketing leaders believe current regulations are fit for purpose, while half actually support further marketing restrictions on high fat, salt and sugar foods.

As with the smoking advertising ban, however, the UK is not alone in these potential changes. On a global level in that case, these changes will come with their fair share of economic disruption in the short-term. According to a new report from Brand Finance, the food and drink industries risk losing a colossal $521 billion to marketing restrictions.

At present, the world’s food and drink industries are worth a combined $2.4 trillion – but after legislation restricting the sale of alcohol, confectionary, savoury snacks and sugary drinks, that could sink to $1.9 trillion. Brand Finance found that more than half of the value lost would come from just nine of the world’s biggest food and drink brand-owning companies: AB InBev, The Coca-Cola Company, Diageo, Heineken, Mondelēz International, Nestlé, PepsiCo, Pernod Ricard, and Treasury Wine Estates.

The nine brand-owning titans could lose a total of $267 billion in enterprise value should marketing restrictions be implemented. On average, the companies in question could each lose nearly a quarter of their enterprise value and over 50% of brand contribution. The Coca-Cola Company’s flagship brand, Coca-Cola, is estimated to suffer the most from a crackdown on sugary drinks marketing – standing to lose $43 billion (the majority of the overall company’s projected $57 billion loss). Meanwhile, PepsiCo’s flagship brand Pepsi similarly faces a $23 billion hit. Nestlé’s overall empire could meanwhile face a $38 billion reduction enterprise value.

While most people might not be shedding any tears for the infamous global empires – several of whom have long been dogged for decades by allegations regarding their environmental impact, their attitudes toward workplace rights, and tax evasion – there may be wide-ranging economic impacts from their loss of income. According to David Haigh, Chairman and CEO of Brand Finance, without capital being able to bank on the market certainties unhealthy products currently represent, there is one less way for investors to preserve value during economic turbulence as seen during the pandemic.

Haigh commented, “Brands are integral to how the world operates. In times of crisis, brands – especially those most valuable and strongest in their categories and markets – become a safe haven for capital. Well-managed, innovative, and reputable brands are what the global economy turns to in the hour of need. Severe marketing restrictions are catastrophic, not only for brands, but for all stakeholders, from consumers and society, to investors and governments.”