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Strong brands is one of the trends Robeco Global Consumer Trends Equities capitalizes on. Fund manager Jack Neele discusses Interbrand's latest 100 most valuable brands. And talks about relevant brands and brands that miss the boat.
“It is more interesting to rank the 100 most valuable brands in terms of how that value has increased or decreased. This reveals trends relating to the products consumers are using and how they perceive companies and brands,” says Jack Neele, Manager of Robeco Global Consumer Trends Equities, referring to Interbrand's annual list of 100 most valuable brands.
This brand consultancy has calculated not only the value of the brands, but also whether this value has risen or fallen. Eight of the ten largest positions in the Robeco Global Consumer Trends Equities portfolio are in the top 100.
“Consumers are attracted to brand products. This has always been the case, and it always will be. And this applies not only to consumers in developed economies, but also to consumers in emerging markets. Increasing wealth means the demand for Western luxury products is on the rise in these countries,” Neele explains.
In addition to strong brands, the digital consumer and the emerging market consumer are other trends in which Neele's fund is invested. “Strong brands have also developed in our digital world of smartphones and tablets, software, apps, search engines and online shopping in recent years.”
What strikes you about the brands that have become more valuable?
“The strong rise in technology brands. The three biggest climbers are all technology companies: Facebook, Apple and Amazon. The technology sector is strongly represented and a third of the 100 most valuable brands are tech brands.”
What can be said about the brands that have declined most in value?
“A division is emerging between new generation brands and those favored by the previous generation. The top ten includes Coca-Cola, IBM and McDonalds – whose value has been falling slowly for years. Coca-Cola and McDonald’s are struggling in the wake of healthy eating trends and IBM is old technology.
Technology dinosaur Microsoft is in the top 10 and according to Interbrand actually saw its brand value increase?
“This I find hard to fathom. Microsoft is really active in cloud services, but has had very little success in the mobile phone market. My perception is that Microsoft's strength is waning.”
A generation gap is emerging in brand land. But Hermès, a traditional luxury brand that is almost a century old, is one of the biggest climbers. How is this possible?
“Hermès is a brand that moves with the times, knows how to stay relevant and responds to consumer preferences. An example of this is the Apple Watch Hermès, for which the fashion label developed the clock face and handmade leather strap. This enables Hermès to position itself with a trendy brand like Apple, while for Apple the fact that a luxury brand like Hermès is supporting its watch is a status enhancer.”
Are there more examples from the top 100 brands that are managing to stay relevant?
“I think Nike and Starbucks are good examples. Nike produces apps that allow people to share their sports performances through social media. And at Starbucks you can use your mobile phone to order and pay for products. These companies are embracing new technologies and using them to their advantage. Consumers appreciate this, which translates into an ongoing increase in brand value.”
Noteworthy: Toyota, BMW, Mercedes-Benz, Honda, Volkswagen, Ford, Hyundai, Audi, Nissan, Porsche, Kia, Chevrolet, Land Rover and Mini are the fourteen car makers among the 100 most valuable brands.
“Many Western car makers have been working on their brand value for over half a century, and Japanese and South Korean car makers for several decades. I don't see Tesla.”
Volkswagen is the only car maker that has seen its brand value decline. Can the company repair its dieselgate-damaged image?
“Consumer confidence takes a long time to build but can evaporate overnight. Volkswagen's reputation has been driven off a cliff and regaining consumer confidence will take years.
‘McDonald’s and KFC are brands favored by the previous generation.’
McDonald’s and KFC are in the top 100, but not in the Robeco Global Consumer Trends Equities portfolio. While Chipotle Mexican Grill is not on the list, but you have bought this company. Why?
“Like McDonald’s, KFC is a brand that was favored by the previous generation. Chipotle is the new generation's preferred choice. It's not fast food, but is referred to as fast casual. It is a combination of fast and personal, with better-quality ingredients. Customers can choose what they want in their burrito, which is then prepared in front of them. This freedom of choice appeals to modern consumers. It's totally different from ready-made hamburgers that are served from the bowels of a kitchen. However, the concept of customization is perhaps even more important than the Mexican food. I expect Chipotle will make it onto the list of most valuable brands in the coming years.”
Under Armour isn't in the top 100, but is in your fund. Nike and Adidas are on the list, but you only have Nike in the portfolio and not Adidas. Why?
“Nike is more successful at penetrating the markets in which Adidas was traditionally strong, like football, but the reverse does not apply to the same extent. Under Armour is bigger than Adidas in the US – it is also a brand that is favored by the new generation. It sponsors young talent such as Memphis Depay and Jordan Spieth.”
After Huawei, Lenovo is now the second Chinese brand in the top 100. Can we expect more strong brands from emerging markets?
“I believe that Alibaba is among the 100 most valuable brands, but it's not on the list. The top 10 are extremely Western, I find, with mainly US and European brands and a sprinkling of Japanese and South Korean ones. While many Chinese brands compete on price, this is not a characteristic of a strong brand.”
Are other strong brands missing from the top 100?
“Uber, Victoria’s Secret, Twitter and Instagram to name but a few. I can imagine that it is difficult to determine the brand value of an unlisted company like Uber. This also applies to brands that are part of a larger company like lingerie brand Victoria's Secret, a subsidiary of L Brands, and Instagram, which is owned by Facebook.”
Manufacturers that can use the strength of their brands to generate consumer loyalty, to exert pricing power and to stay relevant over time are an interesting investment opportunity for Robeco Global Consumer Trends Equities.
Click here for more information about the returns, the portfolio and costs of Robeco Global Consumer Trends Equities
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