Plain packaging poses USD 300bn risk to beverage industry

A report from business valuation consultancy Brand Finance published earlier this month has found that The Coca-Cola Company and PepsiCo would each lose close to USD 45bn, or around 25% of their respective enterprise values.

Following the introduction of plain packaging for tobacco products in some countries and calls to extend the legislation to other sectors, Brand Finance analysed the potential financial impact of such a policy on food and beverage brands in four categories: alcohol, confectionery, savoury snacks and sugary drinks.

The consultancy predicted eight major brand-owning companies would lose a total of USD 187bn if plain packaging was mandated for other FMCG products, with alcohol and sugary drinks brands most vulnerable.

The estimates refer to the loss of value derived specifically from brands and do not account for further potential losses resulting from changes in price and volume of the products sold, or illicit trade. Brand Finance, therefore, argued that the total damage to businesses affected could well be higher.

Plain packaging is often referred to as a branding ban or brand censorship, which imposes strict rules and regulations that require producers to remove all branded features from external packaging, except for the brand name written in a standardised font, with all surfaces in a standard colour.

An increasing number of countries are introducing strict regulations on the marketing and advertising of food and drink products to prevent obesity and lifestyle diseases. With calls for more intrusive measures growing, the prospect of further applications of plain packaging looks increasingly likely, suggests Brand Finance.

Brand Finance chief executive David Haigh said: “To apply plain packaging in the food and drink sector would render some of the world’s most iconic brands unrecognisable, changing the look of household cupboards and supermarket shelves forever, and result in astronomical losses for the holding companies.

“Predicted loss of brand contribution to companies at risk is only the tip of the iceberg. Plain packaging also means losses in the creative industries, including design and advertising services, which are heavily reliant on FMCG contracts.”

India update

While it is harmless to say that the F&B industry in India is still at a safe distance from the issue of plain packaging, the debate on plain packaging for tobacco products has already begun.

The Cigarette and other Tobacco Products (Packaging and Labelling) Amendments Rules 2014 came into force from 1 April 2016. The 2014 rules mandate printing of specified health warnings covering 85% of the principal display area of the products’ packaging. Several proposals have been made since then suggesting the next step was to go in for plain packaging.

According to The Tobacco Institute of India (TII), the plain packaging proposal for tobacco product packaging is orchestrated by foreign anti-tobacco organisations which will only impact the domestic legal cigarettes which accounts for 11 per cent of total tobacco consumption in India.

“Any proposal to implement plain packaging in India on the back of the extreme 85 per cent pictorial warnings will be a further assault on the intellectual property rights of legal manufacturers and promote.”

In a recent development, the Supreme Court on Friday refused to stay the Karnataka High Court order that quashed the government regulation mandating the pictorial health warning to cover 85% of the tobacco product packaging space.

Several petitions, including one filed by Health for Millions Trust, an NGO, have challenged the HC’s December 15 ruling that struck down the 2014 amendment rules mandating the pictorial health warning to cover 85% — image and text — of the tobacco product packaging space on the ground that they are arbitrary and violated constitutional norms. It also held that the earlier 40% warning norm should be restored.

The HC order came on various petitions filed by Tobacco Institute of India, cigarette manufacturers like ITC Ltd, beedi and other tobacco products manufacturers. Various petitions against the 2014 rules filed in different HCs were transferred to the Karnataka High Court by the Supreme Court in May last year. Cigarette and other Tobacco Products (Packaging and Labelling) Amendments Rules 2014 came into force from April 1, 2016.

As far as the Indian scenario is concerned, the feasibility of the plain packaging must be judged from the fact that nearly 75% of all cigarettes in India are sold loose with absolutely no enforcement mechanism to check this practice.