How do you value chocolates?
August 31, 2022
I want to talk all about my favourite ‘food’…
…CHOCOLATE!
More specifically, how do you go about valuing an intangible brand such as Cadbury?
There are so many things to think about…
Of course there are both simple and complicated ways of valuing a brand. The simplest method is to tie it directly to sales and/or profits. But that only works if the “ingredients” to make the branded product can be interchanged without the customer noticing.
We all remember the (temporary) damage to the Coca Cola brand when it tried to change its formula.
Customers are pretty smart and they KNOW when a brand they love has changed.
Of course this rule does not always hold…
On the BBC One’ Eat Well for Less? it’s surprising how many guests on the show cannot tell branded from unbranded products in a blind test.
Another simple way to value a brand is to add up what it has cost to make – research and development, advice, people hours spent etc.
There are some websites that enable owners of brands to sell them online. (And of course you can look on businesses for sale websites for clues too). That source of data is useful too.
Interbrand has a very technical formula which many business school students have studied. If you are curious look at this presentation
Brand Valuation – Cadbury Dairy Milk (slideshare.net)
I remember back in my City days when I worked on the Cadbury account for my bank. There was always a lot of discussion about the fact that Cadbury put its brand on its balance sheet as an intangible asset.
Cadbury UK valued its brand at £5.1m in 2019 and depreciated it to £4.6m in 2020.
Its latest accounts are due out in September so it will be interesting what valuethey put on it then. I assume that other Cadbury companies around the world also put the brand value on the balance sheet.
I was noodling around the internet and found this great story about the best fruit and nut bar by taste in the UK.
(SPOILER ALERT: Aldi’s Dairyfine bar beat Cadbury Fruit ‘n Nut! And both Sainsbury’s and Morrison’s bars scored 4 out of 5!)
So, what that says to me is, based on a sample of one, the Cadbury Fruit ‘n Nut brand and the Cadbury brand are worth just a little bit less these days. Whilst, arguably, the Aldi and Dairyfine brands rose marginally.
Should a recession start to bite, more people will be choosing supermarket brand fruit and nut bars over Cadbury because the taste is better and they cost less.
Cadbury’s sales will suffer and the brand value will soften.
I can see why Cadbury keeps coming up with marketing initiatives to encourage us to buy their products. It needs to protect that brand value because in accounting terms, if sales soften not only will profitability suffer but so will its balance sheet as the intangible value will need revising.
You can now see why valuers, like us, love valuing brands, it’s such an interesting exercise. Finding the evidence and arguments to support a brand’s value requires a lot more than looking at raw numbers.
If you have a business with a brand (and remember brands appear everywhere not just in the supermarket), that needs valuing, just get in touch.
Modwenna Rees-Mogg
