Health Committee - The Government's Alcohol StrategyWritten evidence from the British Brands Group (GAS 37)
PLAIN PACKAGING
Summary
There is no hard evidence on the impact of plain packaging on consumption of alcohol. The likely harm arising from such a policy has also not been assessed;
Brand imagery on packaging performs primarily a differentiation function. There is no evidence that on-pack designs prompt purchase or consumption;
An assessment of any link between brand imagery and purchase or consumption must be accompanied by an assessment of all the other functions of on-pack branding (eg information, competition, economic, export and illicit trade) for the policy to be evidence-based and proportionate;
The impact on intellectual property rights would also require assessment, in terms of the legality of disallowing use of previously-granted rights, potential compensation to industry and the effect on the UK’s reputation at home and abroad as a place to do business.
1. The British Brands Group welcomes the opportunity to contribute to the Health Committee’s scrutiny of the Government’s alcohol strategy.
2. The British Brands Group is a trade organisation that provides the voice for brand manufacturers in the UK. Our members range in size and supply a variety of branded goods in a wide range of product categories, of which alcohol is but one. Many supply packaged products, where the packaging plays a crucial role in allowing them to communicate with consumers and compete in the marketplace.
3. The Group is cross-sectoral, focusing on branding and the implications of current and proposed policy and regulation. We therefore confine our comments to the Committee’s request for evidence on the role of plain packaging as a means to reduce alcohol consumption and harmful drinking. We leave it to others to comment on other brand-related aspects of the inquiry requiring specific knowledge of the alcohol sector.
4. We understand “plain packaging” to mean generic packaging, where all products in a category are packaged the same, in similar containers with similar labels featuring one design, with the only distinctive element being the brand name of the product, reproduced in a standard typeface of standard size and colour.
Evidence
5. We know of no product category in any country where regulation has required plain packaging. There is therefore no hard evidence of pre- and post-effects to inform policy. Where such policies are being considered or yet to be implemented, “evidence” takes the form of consumer surveys exploring the relative appeal of one type of packaging over another (in terms of attractiveness, perceived quality and brand identification). Such methodologies give no insight into the likely behavioural impact of plain packaging, where consumers would have no choice.
6. Distinctive brand design elements that trigger consumer recognition and understanding of products fulfil extremely important consumer, social and economic functions over and above the appeal of the packaging. Evidence would be needed on the harm to these functions under a plain packaging proposal. No such evidence currently exists.
7. In the absence of any evidence on the extent to which plain packaging might achieve the policy objectives outlined (if at all), we focus below on some of the implications to be considered in an assessment of a plain packaging policy.
Packaging Appeal
8. Packaging’s alleged appeal underlies the policy hypothesis that brand designs affect consumption. It would be necessary to compare any such effect with other drivers of consumption (eg parental or peer influences) to determine proportionality. It would also be necessary to draw a direct link between differentiated packaging designs and increased consumption, a link we consider implausible.
9. Consumers (people) tend to see things in relative, comparative, not absolute, terms. In the context of packaging therefore, consumers make choices relative to the options that are available. Distinctive brand designs are more a mechanism for recognising, understanding and distinguishing, rather than for persuasion or compulsion. We are not aware of any evidence that suggests that the packaging of any product in any category is so appealing as to compel purchase and, then, to compel consumption.
Information
10. Distinctive pack designs convey complex information to consumers in a matter of milliseconds, such as the main characteristics of the product, its quality, heritage, values and, most importantly, whether or not that product is their preferred choice.
11. A plain packaging policy, with all products looking the same bar the brand name, would remove such information to a significant extent. This is likely to result in a more complex purchasing process, less informed consumers and a high incidence of mistaken purchase. Such an effect would run counter to existing Government policy, which considers that well-functioning markets are those in which consumers are able to make well-informed, confident purchasing decisions.
Competition
12. Markets in which products are differentiated through branding are those in which competition is based on a combination of quality, reputation, innovation and price. A consumer is quickly able to differentiate between premium, middle-of-the-range and lower quality products, and different offerings in these segments.
13. The ability of consumers to differentiate between products goes hand-in-hand with producers’ incentives to invest in quality, innovation and reputation (including responsible and sustainable ways of doing business). Being able to communicate the consumer and societal benefits of such investment, through marketing and presentation at point-of-sale, allows that investment to be recouped through higher demand and/or higher pricing.
14. Competition in commodity markets (where all products are—or are perceived to be—the same) is fundamentally different, with the focus being predominantly on price. Where products are (or through regulation have to be) undifferentiated, investments in additional quality, innovation and reputation are far more difficult—it not impossible—to recoup as the consumer benefits cannot be communicated and therefore not identified. Barriers to entry for such products are in effect raised.
15. A plain packaging regime would fundamentally shift the nature of competition, with significant implications. Reduced investment in innovation means consumers lose out from fewer new and improved products, while less investment in reputation is likely to be detrimental to sustainable production and societal well-being.
16. Moreover, innovation effort would likely shift to ways to reduce price (which could still be communicated), leading to sclerosis of the market for higher quality products and stronger competition in lower price brackets through the launch of new price-fighting products. This may result in higher consumption of alcohol, not lower.
Economic Implications
17. Innovation is closely linked with economic growth and the creation of new markets. Reduced incentives to innovate on the basis of quality and/or reputation are likely to inhibit economic growth.
18. Reduced UK innovation and saliency of brands as a result of plain packaging may also damage the competitiveness of UK products overseas and may well result in innovation and marketing investment and skills leaving the UK for markets more conducive to brand creation and brand building. Bearing in mind the size and success of UK alcoholic drinks products abroad, this effect is likely to be significant.
Illicit Trade
19. There are three potential illicit trade effects to be considered, increased “parallel” trade from European markets, increased “grey” trade from markets outside the EU and increased trade in counterfeit goods.
20. Were it to be found that branding on packaging does have a greater appeal for consumers than we believe, and were the UK to be the only EU market to introduce plain packaging, there would be enhanced demand for branded packaged products from other EU markets. A similar effect can be expected in relation to grey trade, with products being increasingly imported from markets outside the EU.
21. Should parallel trade increase and be of a scale that exceeds use for personal consumption and should grey trade also increase, this would increase the risk of such products entering the illicit supply chain, with an accompanying increased risk of individual traders circumventing the strict age controls in place in the legitimate supply chain. This would run counter to the policy objectives and may impact duty revenues.
22. In the area of counterfeiting, there are two potential risks:
(1)
(2)
23. Any increase in illicit trade will increase pressure on already stretched enforcement organisations, notably customs, police and trading standards services.
Intellectual Property Rights (IPRs)
24. Brand imagery on pack is protected by IPRs which are granted by the state and protect many of the features that differentiate one product from another. Through significant investment over time, trade marks in particular have become crucial heuristics (mental shortcuts) used by consumers to identify and understand different products, becoming amongst the most valuable of corporate assets.
25. Not only are IPRs granted by the state, they are also protected by international agreements, notably TRIPs. Interference with or the removal of such rights by the state may breach those agreements and obligations and be open to challenge. This was highlighted by Economiesuisse, the Swiss business federation, which stated,
“[R]equiring generic packaging of products . . . amount[s] to an indirect expropriation of intellectual property and constitute[s] a clear breach of international law.”
26. Furthermore, there may be a strong case for the state to pay compensation to those companies who have made huge investments over decades in the reputation of their products and the heuristics associated with them, reflected in their IPRs.
27. Separate from the legality of withdrawing previously-granted IPRs and any case for compensation, a strong message would be sent to the world that the UK is willing to confiscate IPRs (quite possibly without evidence that they inhibit policy goals). This would be a hostile message to business generally and to inward business investment, damaging the UK’s reputation and “brand” abroad.
Conclusion
28. Any potential that plain packaging may have to reduce alcohol consumption and/or harmful drinking must be balanced with a full understanding of the harm such an approach may inflict, on consumers, competition, innovation, the economy, exports, the illicit trade and IPRs. Without it, the policy amounts to a leap in the dark.
29. We believe that, in exploring plain packaging, the role of brand imagery in stimulating purchase and consumption is being enormously exaggerated while the accompanying risks are being ignored. We also believe it would represent a policy move diametrically opposed to mainstream Government policies, leading to less informed, empowered consumers, less competition, less innovation, reduced or no growth and markets that work less well, with the burden on enforcement authorities becoming heavier not lighter.
May 2012