Tesco relegated from premier league of global brands after nightmare year

Tesco Warehouse

Tesco has slumped out of the world’s brand premier league and been overtaken by the German discounter Aldi in the latest sign of the damage caused by a £263m accounting scandal and errors on pricing, quality and customer service.

The UK’s biggest retailer, ranked as the 17th most valuable global brand only five years ago, is no longer in the top 100, analysis by the research agency Millward Brown shows. Its brand value, according to the report – which balances brand power with financial performance – fell 37% in the past year.

By contrast, Aldi’s brand value rose 22% to $11.7bn (£7.6bn), putting it 90th.

Mike Dennis, an analyst at Cantor Fitzgerald, said: “Tesco has been tainted not just by accounting scandals but because it didn’t serve the customer – it served itself.”

Aldi is the fastest growing grocery retailer in the UK, but is also grabbing market share from traditional retailers across Europe.

Dennis said Tesco’s new chief executive, the brand expert Dave Lewis, had a tough job on his hands to rebuild its reputation. He said: “Lewis has not only got to understand how to get the Tesco brand back at the family dining table but to understand what those people want to consume.”

Tesco’s fate also reflects a changing world market in which technology and communications brands such as Verizon and AT&T have overtaken traditional consumer brands, including Coca Cola and McDonald’s, to lead the rankings.

At the head of the pack is Apple, which increased its brand value by 67% to $246.99bn in the past year, overtaking Google to reclaim its position as the world’s most valuable brand. Millward Brown said the success of the iPhone 6 and a “relentless focus on the consumer experience” had put Apple back on top. A decade ago, the company was not even in the top 10.

Facebook nearly doubled its brand value, leaping nine places up the world rankings to 12th as it benefited from stepping into new services and finding a way to make money from its fans’ impulse to share their life stories.

The rise of the tech brands took the value of the top 100 to $3.3tn, an increase of 14% in the past year.

But it was not all good news for such companies. Yahoo! dropped out of the top 100 as it struggled to keep up with the trend from desktop to mobile technology and moved out of China. Twitter was the biggest faller, sliding 21 places to 92nd, closely followed by Samsung, a victim of Apple’s success, which dropped 16 places to 45th. Ebay was down 12 places to 73rd.

While traditional retailers including Walmart, Ikea, H&M and Zara all slipped down the rankings, Alibaba Group, the Chinese online retailer, jumped straight into 13th place – one spot ahead of its US rival Amazon – which fell four places.

Alibaba floated on the New York stock exchange last year with a valuation of $187bn, and leads a rising cohort of Chinese companies in the top 100.

New entrants include the telecoms firms Huawei and China Telecom, while the insurance companies China Life and Ping An joined Tencent, the business behind the mobile service WeChat and the search engine Baidu, among the biggest risers in terms of brand value.

Only two categories declined – global banks and luxury goods.

The brand value of the top 10 banks slipped 2% as they suffered a “massive deficit in consumer trust,” according to Millward Brown’s report, amid continuing revelations about misdeeds from Libor and foreign exchange market rigging to payment protection mis-selling.

Michel Bergesen, a brand consultant at Landor Associates, said: “The banks shook every dimension of trust we might have had. They recovered to the point where we now have transactional trust. But I distinguish that from relational trust. I trust you to get the job done. You are part of the world’s financial plumbing. But do I really trust you in the sense that I would trust.”

Gucci, Hermes and Louis Vuitton all fell down the rankings and Prada dropped out of the top 100 as sales growth slowed in the important Chinese market in the wake of new anti-corruption legislation. Millward Brown said: “Some consumers, particularly [young people], viewed luxury products as expensive indulgences inconsistent with their desire to live in a modest and sustainable way.”

How does brand valuation work?

Millward Brown combines financial and consumer research to quantify the worth of brands in its survey.

The process starts with a calculation of earnings generated by a particular brand through analysing information from annual reports and other sources including Kantar Retail.

Millward Brown then assesses the potential for future earnings as a multiple of current earnings to give a financial value to a brand, similar to that adopted by City analysts when valuing a company.

The next step involves examining a brand’s ability to make people pay more for an item and buy more products - its “brand contribution”. This is calculated with the aid of research covering 3 million consumers and more than 100,000 brands in more than 50 markets to build up a global picture of brands, category by category and market by market.

Finally, the financial value of the brand calculated by Millward Brown is multiplied by a percentage figure representing the brand contribution to calculate the value of the brand featured in the top 100 report.

Powered by Guardian.co.ukThis article was written by Sarah Butler, for theguardian.com on Wednesday 27th May 2015 20.14 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010

 

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