FOR YEARS Drinks International has been publishing its annual Millionaires supplement charting the progress of the industry’s million case spirits brands. Over the years Millionaires has become a much awaited and sought after publication. 

As we all know, volume sales do not tell the whole story and last year we introduced a new league table to add another dimension to measuring the success or otherwise of the big players in the sector. This was a league table based on brand value and we are pleased to be able to publish the results of this year’s table in partnership with Brand Finance.

Brand Finance is the world’s largest independent brand valuation consultancy which specialises in valuing companies business and branded assets. The table can give us a good view not just of a brand’s monetary value but also its ability to generate value today and tomorrow. 

Through analysis and a complicated matrix of calculations based on financial results, future forecasts, brand strength and royalty relief (see methodology box, page 24), Brand Finance has produced its second World’s Top 50 Spirits and Wine brands by Value.

The company’s chief executive David Haigh says: “We have been surprised at how dynamic the sector has been in terms of increases in value, there are some hotspots in the world where the major players are benefiting from years of investment in creating international symbols of success that newer consumers aspire to drink and can afford.”

Johnnie Walker has maintained its position at number one with Bacardi, Smirnoff, Hennessy and Chivas making up the top five. But it is not just the famous global brands that are going from strength to strength.

We were surprised last year to see two Chinese brands, Kweichow and Wuliangye, in the top 10, but this year they have consolidated that position with a move up the table to sit at six and seven just behind the big global players.

Further down the table we see other Chinese and Korean brands moving up and some well-known brands such as J&B, Dewar’s and Beefeater slipping down the table. This could be an indicator of the going being tougher for brands with a dependence on the harder pressed economies of Europe and the US.

The measuring of domestic brands is always a challenge and we know there are some huge domestic brands in India and Asia generally and as the data improves we hope to reflect this in the table.

This year, Brand Finance has added some brands which did not appear last year and it will continue to make the table as comprehensive and accurate as it can be. This has moved some of last year’s brands positions about, but generally the moves are caused by changes in brand value.

We hope you find it interesting not just for seeing where your brand, or a brand that interests you, measures up but for the issues it raises about the shifting roles of global, regional and local brands and how the industry landscape could change in the years ahead.

If you were an investor, where would you put your money?

Local brands and global brands 

With both Diageo and Pernod Ricard publishing their half-year results, it is clear that despite the “divergent macroeconomic trends” both have posted strong performances through two key factors, their portfolio of premium brands and their established presence in emerging markets. 

Where those two factors combine it is a recipe for exceptional growth and with some reports suggesting that within five years Chinese consumers will account for more than 20% of all luxury goods purchased in the world, the value generating prospects for these premium international spirits brands look well set.

Currently this is favouring dark spirits of whisky and cognac and it will be interesting to see if the power brands in light spirits can capitalise too.

The league table shows that it is an international top five of brands with Johnnie Walker, Bacardi, Smirnoff, Hennessy and Chivas, but with a change in last year’s placings. Hennessy moves up from five to three, Smirnoff drops from three to four, and Chivas Regal slips slightly from four to five .

It has been a particularly strong year for the LVMH house of brands not just Hennessy but its champagne brands too have made strides up the table.

In terms of volume though, even the top five are eclipsed by the sheer size
of China’s domestic brands (and no doubt by other domestic brands that we have not been able to recover financial data for).

Last year we were surprised to find two Chinese brands in the top 10 and this year they have strengthened their positions with improved performances in their domestic market.

It can be tempting to write these products off as just cheap local liquor that is all people know until they can afford the international brands they really aspire to, but that is perhaps an underestimation of the country that claims the invention of distillation.

Kweichow Moutai is considered the drink of banquets and has been served to heads of state as a national drink. Wuliangye describes its objectives to be “a world renowned brand” and has started to make a move beyond the boundaries into Korea and into Times Square in New York. 

Established brands

But what about brands who are slugging it out in mature markets and having to force the pace to generate growth?

It is good to see evidence of some value-adding activity by brands in these markets too, with strong growth for Jameson for example moving from 27th to 24th place and The Famous Grouse benefiting from its innovation in line extensions at number 37.

Glenfiddich remains the highest ranking malt whisky, up three places at 32 with The Glenlivet remaining at number 47, with a less dynamic performance. 

On the other side of the coin some familiar names are fighting to hold their ranking in tough times, Beefeater and J&B for example demonstrate how fortunes can change from what used to be the powerhouse of young spirit consumption that was Spain.

Where are the wines?

We have highlighted the performance of champagne brands but it is not until position 16 that we find a still wine brand with E&J Gallo, and then the Chilean wines of Concha y Torro at 23. 

In between is a Chinese brand Chang Yu at number 20, up from number 22 last year. In fact there are only seven wine brands in the top 50 suggesting that becoming internationally established is among the many marketing challenges that branded wine faces. 

Summary

This year’s table confirms some of the observations noted in the first table published in Drinks International
(March 2011) and paints a picture of the shifting balances of power among the top 50 most valuable drinks brands in the world.

Not least the reflection that while the emerging markets are feeding value for international spirits brands who knows how far away the day is when Moutai makes itself international and the drink of choice for aspiring westerners. After all, Johnnie Walker was a “domestic brand” once.

Analysis by Brand Finance, 3rd Floor, Finland House, 56 Haymarket, London SW1Y 4RN, UK. brandfinance.com. 

Other commentary contributors from Brand Finance are Martin Kember and Richard Gowar.

About Brand Finance’s methodology

The methodology employed in this Brand Finance Top 50 Spirit & Wine Brands by value uses a discounted cash flow (DCF) technique to discount estimated future royalties, at an appropriate discount rate, to arrive at a net present value (NPV) of the trademark and associated intellectual property: the brand value.

The steps in this process are:

l Obtain brand-specific financial and revenue data.

l Model the market to identify market demand and the position of individual spirit brands in the context of all other market competitors.

Three forecast periods were used:

Estimated financial results for 2011 using Institutional Brokers Estimate System (IBES) consensus forecast.

A five-year forecast period (2012-2016), based on three data sources (IBES, historic growth and GDP growth).

Perpetuity growth, based on a combination of growth expectations (GDP and IBES).

Establish the royalty rate for each spirit brand.

This is done by:

l Calculating brand strength – on a scale of 0 to 100 – according to a number of attributes such as asset strength, emotional connection, market share and profitability, among others

l Determining the royalty rate for each of the revenue streams mentioned in step 1

l Calculate future royalty income stream

l Calculate the discount rate specific to each brand, taking account of its size, geographical presence, reputation, gearing and brand rating (see below)

l Discount future royalty stream (explicit forecast and perpetuity periods) to a net present value – ie. the brand value.

Royalty relief approach

Brand Finance uses the royalty relief methodology, recommended by the International Valuation Standards Authority (IVSC) and recognised by the ISO 10668 Brand Valuation Standard. It determines the value of the brand in relation to the royalty rate that would be payable for its use were it owned by a third party. The royalty rate is applied to future revenue to determine an earnings stream that is attributable to the brand. The brand earnings stream is then discounted back to a net present value.

The royalty relief approach is used for three reasons: it is favoured by tax authorities and the courts because it calculates brand values by reference to documented third-party transactions; it can be done based on publicly available financial information; and it is compliant with the requirement under the IVSC to determine Fair Market Value of brands.

Brand ratings

These are calculated using Brand Finance’s ßrandßeta® analysis, which benchmarks the strength, risk and future potential of a brand relative to its competitors on a scale ranging from AAA to D. It is conceptually similar to a credit rating.

Valuation date

The data used to calculate the ratings comes from various sources including Bloomberg, annual reports and Brand Finance research.