In recent weeks, we have heard that a number of companies, including Hershey, Ferrero, and Nestle, are interested in competing with Kraft to bid on the British confectionary icon Cadbury. All of these stories have caused me to want to stop and reflect on the value and durability of brands.

However the acquisition battle turns out, I am sure the beloved Cadbury brands will be well cared for. After all, no one is trying to acquire the Cadbury company for its factory or physical assets. The various suitors want to buy it for the strength of its brands and the relationships consumers have with those brands. That’s where the real value resides. And what is more, with care and attention, that value can last a long, long time. I can say this with some certainty because my first job was at Cadbury, and many of the brands I worked on more than 25 years ago are still going strong—though they are now owned by a company other than Cadbury.

I worked in the Cadbury Typhoo foods division on brands such as Hartley’s jam, Marvel dried milk, and Smash instant mashed potato. (Ah, Monday morning instant mash tasting sessions in R&D. Yum!) Not many years after I left Cadbury for Millward Brown, this division was acquired by Premier Foods. Not only have “my” old brands survived, but over the years Premier Brands has added to its collection of iconic British brands with Branston pickle, Homepride flour and Bisto gravy powder.

Premier has adjusted its portfolio of brands in the same way that you or I might adjust our stock portfolio. Their brands are their assets. For instance, Typhoo Tea, which was the mainstay of the old Cadbury Foods division, was sold to the Indian company Apeejay Surrendra Group for £80 million in 2005. Typhoo was failing to gain share versus P.G. Tips and Tetley, store brands were getting stronger, and the tea category overall was declining in term of volume. Those issues made Typhoo a logical choice for disposal. (Click here to read more.)

Unfortunately for Premier, its investment in a portfolio of strong brands has not paid off in a strong share price of late. The 2008 annual report blames this on concern over the company’s debt position. I wonder whether the company’s focus on the U.K. and Republic of Ireland is also a cause for concern. Neither one is a significant growth market and both are suffering badly from the recession.

That strong brands are an asset is not in doubt. But the example of Cadbury and Premier remind us that social and economic conditions as well as category dynamics play a critical role in determining the value of a company and its brands. It’s not just how strong your brands are; strong future revenues also depend on being in the right categories and countries.

As I said, I suspect that if any of the current contenders acquire Cadbury, they are likely to leave the brands untouched. But can you think of any acquisitions which have not worked out as might have been expected? Please let us know.

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This entry was posted on Wednesday, November 25th, 2009 at 11:07 pm and is filed under Brands. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site. Print this Page