Plain packaging laws for soft drinks and alcohol could cost the industry billions in value

Plain packaging laws for soft drinks and alcohol could cost the industry billions in value

Research this week has brought into stark relief the potential threat that plain packaging laws could have on the global drinks industry.

Imagining a world in which all alcohol and sugared soft drinks are sold in unbranded, uniform bottles and cans, the Brand Finance study found that overall the industry could expect to lose, in absolute terms, almost US$300bn in enterprise value. Taking the brunt of the hit would be The Coca-Cola Co, for whom the loss of its iconic Coca-Cola iconography, along with those of other well-known brands, would equal an estimated US$47.3bn drop in value. Meanwhile, world's biggest brewer Anheuser-Busch InBev could face a $43.3bn value fall and Absolut owner Pernod Ricard a $10bn drop.

Ever since Australia became the first country in the world to implement plain packaging laws on tobacco products in 2012, suggestions have swirled that perceived unhealthy beverages would be next in line. As other countries such as the UK and France enforced their own plain packaging laws for tobacco, calls for action on drinks have grown stronger. In March, Cambridge scientist Wolfram Schultz, who leads research into brain reward functions, lent his weight to the push for legislation, arguing that plain packaging on high-calorie beverages could lower obesity rates. Just last month, an editorial in influential medical journal The Lancet examined the question of alcohol advertising, concluding that there is "no excuse to ignore regulatory interventions" such as plain packaging.

"It is not unimaginable that bottles of Château Mouton Rothschild, which once bore the artwork of Salvador Dali and Pablo Picasso, might one day be required to have plain packaging and images of oesophageal cancer or a cirrhotic liver," it said.

But, how accurate a picture is this?

Speaking to just-drinks, Morningstar analyst Philip Gorham, who covers both beverage and tobacco companies, says the introduction of plain packaging for drinks is not inevitable. He maintains, however, that the soft drinks landscape in a few years time will be more akin to that of tobacco today, in that consumption will be in structural decline and governments will look for "more draconian marketing restrictions on the worst obesity offenders".

It is, however, difficult to learn from the experiences of tobacco just how much of an effect a plain packaging law would have. One year after the law was implemented in Australia, tobacco sales actually went up. Granted, the rise was only 0.3%, but it was the first increase in five years and was seized on by pro-tobacco groups as evidence the new rules weren't working.

A wider picture emerged in October this year when a study by Australia's Department of Health found that between December 2012 and September 2015, the plain packaging laws were responsible for a 0.55 percentage point decline in smoking prevalence, or one-quarter of the total drop. For some, this was evidence that the law was having an effect.

Soft drinks and alcohol have only more recently become the focus of health activists, so to be subject to the same packaging laws as tobacco could have an instant and major impact on their prestige - far more so than for cigarettes, which have been closely linked to cancer for the past 20 years at least.

"Plain packs are a real risk," explains Gorham, who believes that the removal of brand identity on-pack and on-shelf would "destroy the ability to communicate with the consumer at what is often the point of the purchase decision".

He continues: "The data is still unclear, but it looks like [plain packaging] has caused some trading down in tobacco, especially when combined with tax increases, as it was in Australia. If this happened in food and beverages, it could shift a lot of the competition to price."

Furthermore, the rise of stores such as Lidl and Aldi in western markets has made the consumer far more accepting of private-label brands. "Plain packs could provide further encouragement to trade down," Gorham says.

As soft drinks companies and alcohol producers increasingly seek sales growth through premiumisation, then, any new risk of downward pressure would not be welcomed by many.

Expert analysis

Taiwan Tobacco & Liquor Corp in Alcoholic Drinks (Taiwan)

Taiwan Tobacco & Liquor Corp in Alcoholic Drinks (Taiwan)

Taiwan Tobacco & Liquor Corp is anticipated to continue to focus on beer, its strongest area. The company is expected to make moves to raise the quality of its lager offerings, in order to combat the more