Translating Brand Value to Financial Performance | Advantage Brands

Account             Social Media and New Markets

If you are following the unfolding of the pain in Spain on the news ticker, (the showing is currently in Greece), you will have noticed already. Scroll through your favorite personal finance web site or ask your advisor, today’s alternatives for well performing stocks are one of your top 10 super brands: McDonalds, Coke and Proctor & Gamble. Similarly JNJ ( Johnson & Johnson) continues to command a market based valuation of $170 bn on a measured brand spend of $2.60 bn, very similar to Coke’s $2.67 bn. These three brands interestingly also have significant sports spend for brand sustenance across Football, Soccer and the Olympics and depend significantly on Television, outdoors and limited print advertising.

Of these, both Coke (KO) and P&G (PG) have a Market Capitalization of $120 bn and $170 bn respectively. Coke has other international stocks that share its brand value in COKE and the erstwhile CCE. McDonalds single stock ticker MCD accounts for its market value of $74 bn as of Friday.

McDonalds for example continues to innovate on its menu, grow same store sales consistently with new additions in premium coffees, angus burgers and even new ranch sauces with red curry eggplant if things work out for its Director – Culinary innovation (Bloomberg Business Week, Sept 2009) Its brand is also sustained  by aspects of naive “word of mouth” apart from marketing spend, product management and innovation. almost all these brands invest in “wellness and good health” important to every family, even Coke(Fruit Juices, Water and Teas) . Quarterly Sales of $5.6bn with only 61% Cost of Goods sold obviously add financial value, as do $33bn in fixed assets including appreciating real estate all across the world. However, none of that explains completely its pull as a desired financial stock without its foremost calling as the brand that represents America. Apart from reporting more than $5.5 billion Sales in each quarter of 2009, McDonalds also spent $2billion for brand spend according to Adage, as much as European star “Mars” or half that of the fashion accessory / women’s personal brand L’Oreal and ahead of Citibank, ING and Bank of America by a $1 billion each in just measured-media spending.

Coca Cola spent $2.67bn and P&G a huge $9.73 billion on its brand(s). If Adage is to be believed, these brands also spent a significant amount from the same in new Emerging Markets, important Financial growth destinations. For each of these brands Marketing is the most significant spend item in the SGA expenses on the Income statement. McDonalds brand carries it to new markets effectively competing with YUM KFC and Subway brands that report at most 20-25% of the sales at a McDonalds. As a stock, Carl’s Jr owner CKE has been doing very well recently, concurrent to its launches in Asia an emerging markets giving it a brand growth opportunity even with a smaller brand value of $2-3 bn.

Coca-Cola Co. allocates just 16.5% of its $2.67 billion measured-media spending to the U.S. market but spends nearly three times as much in Europe. Three-quarters of Coca-Cola’s sales come from outside the U.S.

Procter & Gamble Co., the world’s biggest advertiser since overtaking Unilever in 2002, devotes 65% of its $9.73 billion measured-media spending to international markets, slightly ahead of the 61% of P&G revenue that comes from outside the U.S. P&G is the biggest advertiser in all regions except Latin America and Africa, where Unilever reigns.

The biggest marketers are investing ad dollars wherever they can find revenue or potential for growth in a tough global economy—and increasingly, that’s China. And some 39 of the Global 100 had measured-media spending in China last year. Five of them already invest more than 10% of their budgets there—Yum Brands, Pernod Ricard, Avon Products, Colgate-Palmolive Co. and P&G. For fast-food seller Yum Brands, China represents 20% of the company’s worldwide measured spending of $1.41 billion. The parent of KFC and Pizza Hut generated 31% of 2008 revenue from its China division, where sales surged 36%.

P&G, China’s biggest advertiser at about $1.1 billion, accounts for more than one in four dollars—27%—of the Global 100′s China measured-media spending. Overall, China represents 3.4% of total ad spending for the Global 100, slightly below ZenithOptimedia’s estimate that China accounted for 4.1% of 2008 worldwide ad spending.

There had been earlier attempts at harnessing this brand value directly in the balance sheet but their proxy from revalued real estate or goodwill from sold and bought brands is well near a disservice to the value these brands represent. Apart from that, the Financial Statements reflect only book value of assets and the Market valuation that is closer to its value in the Financial markets always attempt to make up the gap in undue leverage and lend a hand to the eventual bubbles that characterize one off black swan events or even recessions. These Consumer staples brands however remain great “defensive” plays even as peers like Starbucks, continue to attempt financial market transactions and financing expansions leveraging the same brand value. Financial valuations and Sales also do not correspond one  to one in each case with JNJ creating $15.6 bn in Sales each quarter with COGS of 40% including 10% R&D spend, and SGA with a higher participation of Sales staff related expenditure to $4.5bn agst a Quarterly marketing spend allocation of roughly $750 mn

Notably, brand spends in Europe, that are sizable in the above 3 brands ( $1.2 bn for Coke) have not translated in any significant gains whereas their existing brand values have created and fueled unprecedented growth in Asia and emerging markets creating a disproportionate yield in Sales growth outside China, Europe and USA.