Global BV News: Coffee: It’s all about the brand

BVWireIssue #171-2
December 14, 2016

Coffee is a perfect example of how branding can add value to a business. Despite being a commodity with little room for differentiation in a mature market, branded coffee businesses show strong profitability and enterprise value. This is due to branding and the resulting consumer preferences it triggers. In blind testing, consumers taste differences between bean or roast varieties, but such differences are virtually nonexistent between brands. In such cases, it is the brand that makes the difference, not the product itself.

Good to the last drop: In an analysis of 18 global coffee brands acquired between 2004 and 2015, average royalty rates for coffee trademarks were between 3.5% and 4%, according to data from MARKABLES (see chart below). The trademarks of coffee businesses account for 20% of enterprise value, ranging from 10% to 30%. The average sales multiple paid for coffee businesses is between 1.5x and 1.75x revenues. The peer group includes brands like Folgers, Van Houtte, Douwe Egberts, Café Bustelo, Café Pinon, among others. Not bad for a product that is basically a commodity, and for peers that are mostly second- or third-tier players. Valuation multiples for the market’s leading brands would be even higher, but they are rarely subject to acquisition.

(click image to view full size)

MARKABLES (Switzerland) has a database of over 8,200 global trademark valuations published in financial reporting documents of listed companies.

Please let us know if you have any comments about this article or enhancements you would like to see.