Jul 28, 2019

Even the strongest brands can grow stale. Just ask Jamie Oliver

written by Lisa Eason

Most brands are destined to disappear — even apparently strong ones. Why do so few endure? The ones that last might be category pioneers, building powerful, first-mover consumer loyalty. The goodwill towards them feels almost eternal; Gillette and Kellogg’s both meet that definition. Once established, such brands possess a huge retail presence and tend to enjoy high margins and cashflow, which funds marketing support. Good cashflow will also enable investment in efficient production, buying power and distribution. Early advantage can build something of a moat against competitors.

Other brands have technical strengths rivals cannot match. Botox is a hard-to-make drug that commands a higher price than rivals because of its familiarity and claims that it is the most effective wrinkle-filler. Unlike many blockbuster pharmaceuticals, it is not protected by a limited-life patent. Instead, its formula is a trade secret, just like Coca-Cola. The US Food and Drug Administration first approved Botox for cosmetic procedures in 2002, and its $3.6bn (£2.9bn) in revenues in 2018 represents 70% of the total market for these compounds. AbbVie recently bid $63bn for Allergan, in part because it owns Botox. That’s quite a brand valuation.

Yet brands are being invented, and also fading away, all the time. Even a seemingly strong franchise can crumble swiftly. When Jamie’s Italian opened in 2008, it was perhaps the most successful British restaurant chain launch ever, boasting higher revenues per branch than any comparable casual dining operation. The company embarked on a bold expansion strategy and opened 40 outlets, yet within 11 years it had all but collapsed, destroyed by high rents, competition and management issues.

Structural change in markets also kills brands. Many classic retail chains have died in recent years, mainly due to the rise of ecommerce. The departed include Woolworths, Comet, MFI, Austin Reed, BHS and hundreds of others.

Another factor in the demise of consumer brands is the growth of own-label products, especially in food and drink. Britain is a world leader in supermarket own-label goods: they now capture more than 50% of all food and drink sales, while in segments such as health and beauty, confectionery and alcohol, they account for up to a quarter of the market. Yet still the churn of brands is pretty high. For example, in spirits, beers and soft drinks, they come into and fall out of fashion with alarming speed. There is a need to invest in marketing and innovation relentlessly to defend sales.

Certain markets are in effect oligopolies, so entrenched brands persist and big new players are rare. The rise of challenger banks and new fintech offerings may have an impact on the giant British clearing banks, but the likes of Barclays, HSBC, Royal Bank of Scotland and Lloyds Banking Group still control more than 80% of the market and are losing share only very slowly.

Meanwhile, the genealogy of car companies shows that every single one of the 20 or so global mass-market manufacturers/brands is at least 50 years old and most have been around for a century. Tesla is a rare exception — and has accumulated net losses of over $5bn. The enormous capital requirements and relatively low margins and investment returns in the automotive sector — even for the better franchises — discourage new entrants, but car sharing, autonomous vehicles and the decline of the internal combustion engine will doubtless trigger further mergers among the incumbent players, and possibly the disappearance of some legacy brands.

Devising new brands is pretty easy. Building them is hard, and keeping them going in the long term is extremely difficult. I own several books about the founders of British businesses that were published in the 1980s, 1990s and early 2000s. A high proportion of the brands featured have ceased to exist, even though they were big names then. It is surprising how many apparently dynamic brands fail to outlive the departure of their creators.

Meanwhile, experts rank Google, Amazon, Apple and Facebook as four of the world’s five most valuable brands in 2019. I wonder what their standing will be in 10 or 20 years. Of course, capitalism thrives through upsetting the established order. The constant arrival of new and improved brands helps satisfy customers and reward risk-takers — the hallmark of a healthy economy.