In a climate where consumer spend (and, therefore, adspend) is on the rise again, strong brands with strong business models should be able to find growth. But with the ever-present threat of disruption, is organic growth enough? Does the City’s preference for mergers and acquisitions mean we are losing creative brands to the draw of consolidation?
In the past month, SABMiller has accepted AB InBev’s fifth takeover proposal at a valuation of £68bn. If approved, it will cover about a third of the beer market, with brands including Bud Light, Budweiser, Corona, Grolsch, Peroni and Stella Artois in its stable. Müller’s acquisition of Dairy Crest was also approved.
The casualties of acquisitions
Earlier this year, the gambling market prepared for major consolidation as Paddy Power and Betfair agreed a deal and Ladbrokes announced a merger with Gala Coral. And let’s not forget the proposed Hutchison Whampoa and O2 and BT/EE deals in the telecoms space.
The reality is that it's banking over brand-building
With many acquisitions being made for financial or scale reasons, it can result in smaller brands being sucked into the bigger entity and creativity being lost. Cadbury, for example, is widely thought to be missing the level of creative impact it enjoyed before the Kraft acquisition in 2010.
As Phil Rumbol, co-founder of creative agency 101 and a former marketing director at both AB InBev and Cadbury, puts it: "The reality is that it’s banking over brand-building."
He adds: "In a system that rewards financial plays such as mergers and acquisitions over building business organically, you can create more shareholder value, or the illusion of it, by borrowing money to buy a new business rather than organic growth."
Similarly, 18 Feet & Rising chief executive Jonathan Trimble argues that creativity becomes very difficult because corporate groups impose standardised ways of working and complex approvals processes.
He has a proviso, though. "If a team is passionate and persuasive, boardrooms can be convinced. It takes a fair bit of conviction [and] the ability to bring a wide group of stakeholders along with you. There is a confidence that is lacking after marketers lose enthusiasm after being told ‘no’ for so long, or working hard on plans to have the budgets cut at the last minute," he says.
So, it can be done. Innocent and Coca-Cola are a good case in point, as is Green & Black’s following its purchase by Cadbury in 2005. According to Trimble, keeping a distance after a deal is struck, by maintaining separate offices, can help brands avoid being swallowed up or else changed by the corporate pressure.
Preservation of identity
"If a business is local and profitable and there is no reason to scale it beyond borders, corporations do realise the value of having those strong creative and locally empathetic brands. It’s rare, though," he adds.
However, scaling a business isn’t the only option. "Brands that have specific audiences, or who maintain a particular premium and are therefore under no obligation to scale, can remain independent," Trimble points out.
Rumbol also cites Innocent’s sale, and Unilever’s approach to Ben & Jerry’s: "It works best when the buyer preserves identity and culture. Coca-Cola runs Innocent as a separate business. I don’t know whether the same is true at Ben & Jerry’s, but it is likely [to be]."
Customers are not stupid and will realise it is not genuinely a new brand. They will quickly tell that it’s O2 with the corners shaved off
However, with possible disruption looming, there are some businesses reverse-engineering this situation. O2 has two brands that use its infrastructure and network, but operate as separate businesses – spin-off GiffGaff, and Tesco Mobile.
Economies of scale
Gav Thompson, now chief marketing officer at Paddy Power, created GiffGaff when he was at O2. He says building a brand that stood for very different things from its owner, but still shared the economies of scale, meant it could be done. "Customers are not stupid and will realise it is not genuinely a new brand. They will quickly tell that it’s O2 with the corners shaved off.
It’s not just a new brand proposition – O2 has a massive network and billing systems and, of course, that can be shared, or you don’t get economies of scale. We spent a lot of time on that in the early days – we were obsessed, as we didn’t want to scratch the surface and see O2 shining through," he explains.
Conglomerates, fearing the disruption from the next Uber in their sector, may snap up businesses and prevent the development of creative brands.
However, strong brands that stand for something can maintain a premium – and smart companies have proved they are willing to stand back and let these brands thrive.
Consumers can detect a lack of authenticity from a distance these days, so staying true to brand values is going to be key to long-term survival.