Nestle and the Sugarbabes

Jelly baby playtime #2 front focus

In 1988 Nestle bought Rowntree, the UK confectionary company famous for its fruit gums and jelly babies. It paid £2.5 bn which was three times more than the market thought it was worth. Nestle then had a big problem with its accounts.

Traditionally,  accountants would only look at the value of tangible assets; physical things like equipment and buildings. The difference between what you paid for a company and its tangible assets was called goodwill and had to be written off. Rowntree at the time had tangible assets of £0.5 bn. So according to the accounting principles of the day, Nestle had just blown £2 bn on intangible assets that had no true recognised value.  It faced having to declare a huge loss.

Nestle argued this was nonsense. The intangible assets were not worthless, in fact they were very valuable. They were consumer brand names that had cost many millions in advertising  investment to build up. Moreover, they were more valuable than physical equipment. Machinery wears out  and breaks down in the end; it depreciates in value. Brand names don’t. They last for ever.

This debate about accounting policies ran on for over a decade. The proper accounting treatment of brands was not settled until 1999 in the UK and 2002 in the US. Nestle’s view won out. Brands do have financial value and don’t depreciate.

Brand valuation is an example of catataxis. It’s the value of a concept rather than a physical object. Beauty is in the eye if the beholder. Brand is in the mind of the consumer. So accountants are now valuing things one level higher than the physical.  They are pricing emotions in your head. How you as a consumer feel now has a recognised monetary value. That is catataxis.

The ultimate expression of a brand is a pop group. Rowntree’s jelly babies is a physical product with some warm consumer associations. But a pop group is not a physical product at all. Its pure concept. So a band is the ultimate brand. It can exist without its physical parts. Forget jelly babies, look at the Sugarbabes.

The Sugarbabes formed in 1998 with three members: Siobhan Donaghy, Mutya Buena and Keisha Buchanan. One by one, all three of the original members have left the group. The line up in 2010 is Heidi Range, Amelle Berrabah and Jane Ewen. The constituent parts are completely different from ten years ago, but the band is still the same. It is still selling out big arenas so clearly the fans don’t mind. The band is not its members. It exists at a higher level. A catatactic success story.

Cynics can point out that this is a manufactured girl band. It is run by Crown Management, so of course the members are mere interchangeable components. This view is unfair. Organically formed bands who write their own material have similar problems.  The Rolling Stones as a band (and brand) is still as strong as ever. But the solo albums by the members are embarrassing flops. Mick Jagger released a solo album in 2001 which sold only 954 copies on its first day. A few years later the Stones “Bigger Bang” tour played to 3.8 million people and grossed $500m. So when Mick writes songs and releases them under the Stones banner its completely different from releasing them on his own. That is catataxis.

Consider Pink Floyd. This band lost its creative mainspring  not one but twice. Syd Barrett left in 1968 and Roger Waters left in a very acrimonious breakup in 1985. Roger Waters wrote almost all of the The Wall which has sold 20m copies worldwide. His first solo album was “The Pros and Cons of Hitchhiking”. This is very similar to The Wall, even down to the artwork by Gerald Scarfe. It was written at the same time as The Wall and at one time could have been recorded by the band. It was an embarrassing flop.

A big dispute followed about the ownership of the Pink Floyd name.  Roger Waters lost out and the remaining three band members kept ownership of it. They have since released two successful albums and had three sellout tours. Roger Waters is touring “The  Wall” right now – though not under the Pink Floyd name. Is it any good? I’ll tell you next year. I am lucky enough to have tickets to his May shows in the UK….

 

( the show was great by the way – and I had seats right at the front – see pics below) 

2 Replies to “Nestle and the Sugarbabes”

  1. I was watching “Herbie” yesterday afternoon – the one with Lindsay Lohan and Michael Keaton. Just realised the same point applies to this film franchise. You can replace the actors and completely update the story, but the core of the film remains the same, people will take their children to watch the new version.

    Which then reminded me the same thing applies to classic cars. There is a scene in the film where Herbie gets smashed up at a demolition derby and they completely rebuild the car over night. What part of the car is Herbie, if you replace all his parts. The same is true for non fiction classic cars which are decades old. Presumably they are mostly not made up of the constitutent parts?

  2. Yes – that’s right. Cars and our bodies too. All the cells in your body are replaced every seven years. So you literally are NOT the same man as you were as a teenager! In your case, of course, you are a much improved model…

    Your comment also reminds me of the Country and Western song about a guy who works in a Detroit auto factory. Every day he steals a different small component and eventually builds a brand new car at home. Can’t remember title or singer though..

Leave a Reply