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Sunday Telegraph: Brands count but companies don't


By Tony Jackson (Filed: 25/04/2004)


Welcome to the world of the Incredible Shrinking Company. Marks & Spencer and J Sainsbury are selling less per store than a year ago. Abbey National has seen its mortgage business shrink in the midst of a housing boom. Shell, for a variety of reasons, contrived to replace only 60 per cent of the oil it sold last year. 


In business terms these cases differ. But they raise a common question. Can big, familiar companies simply vanish? Can we picture a world without M&S or Shell?


Indeed we can. Whole industries, after all, have vanished in the past, from textiles to shipbuilding. Growth industries are not immune either - think of Plessey and Ferranti in electronics. Nor is there safety in mere size: 20 years ago ICI was the first non-oil company in the UK to make profits of 1bn; now it is a shrunken remnant.


We must distinguish between corporate entities and brands. Take that quintessentially British brand, Marmite. The original company lost its independence to its rival, Bovril, between the wars. It was subsequently sold to James Goldsmith, who sold it to Beecham, which sold it to CPC International of the US, which sold it to Unilever.


Half a dozen owners, then, of which only one survives. Marmite and Bovril were taken over, Goldsmith's Cavenham was liquidated, Beecham merged with SmithKline, and CPC - by then known as Bestfoods - was taken over by Unilever four years ago. And all that time, I imagine, very few Marmite addicts either knew or cared.


In the retail trade, though, brands and companies are harder to prise apart. Aged retailers get broken up or rebranded, or stagger into extinction under the same name. Take two venerable US retailers, Woolworth and Kmart. The former is now called Foot Locker, and sells running shoes. Kmart - the erstwhile giant which served as a model for the fledgling Wal-Mart - went into Chapter 11 bankruptcy two years ago.


And Marks & Spencer? Five years ago I wrote a piece suggesting that M&S might be doomed, and was then abashed by its apparent recovery. It now looks as though I was right first time.


The process may take many years, as it has with Kmart. But the problem lies with the brand itself. People know exactly what to expect from an M&S store, and increasingly seem not to want it. If I am right, either the business gets broken up or renamed, or it carries on shrinking.


The same seems likely for W H Smith, which last week produced results termed "unacceptable" by its chief executive. Whatever happens to the ownership (a private equity bid is on the table), I doubt the brand will survive in the long run. Like its age-old Scottish rival John Menzies, which ceased to exist as a retailer six years ago, it has lost its raison d'etre.


What about Shell? It might seem absurd to talk of the demise of a business still worth almost 100bn, but it pays to stretch the imagination. There is certainly something badly wrong with Shell's senior management, and legal action against the company has not even started yet (apart from the inevitable class action preliminaries), though it looks highly probable.


Suppose the business did turn out to be fatally weakened in the long run. What would the end-game look like? Something between the American Woolworth and Marmite, I suspect. The value of an integrated oil company comes in several parts. Like a retailer, it has asset backing, in the form of oil in the ground. But it also has a brand name.


Odd though it may seem, people look to brands in buying oil, however undifferentiated the commodity. Thus, BP still uses several of the brand names it has acquired through takeover. It sells motor oil under the Castrol name worldwide; it runs Arco petrol stations west of the Rockies; and it sells Amoco brand petrol - though in BP stations - elsewhere in America.


So the red-and-yellow clam shell has practical value. That is not to say the brand cannot suffer reputational damage. But whereas an oil company can alienate customers by being seen as a polluter or an exploiter, I doubt if the average punter on the motorway is much exercised by arcane data on reserves.


Either way, the current jibe that you can't be sure of Shell has real force, and a wider relevance. Whether as customers or employees, we may find it unnerving to reflect that no business can ultimately be relied on. But in the post-bubble world, I reckon a lot of us knew that already.

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