I've been thinking about whether we're entering a period where the traditional advantages of consumer brands are becoming much less valuable.
For decades, the model was relatively simple:
Build a great brand -advertise heavily - secure distribution - charge a premium - generate high ROIC.
But the landscape has changed.
Private-label products have improved significantly. Consumers can compare prices and reviews instantly. Social media has made it possible for new brands to build awareness incredibly quickly, while retailers increasingly control the customer relationship and have their own data and private-label offerings.
That potentially creates a fundamental problem for established brands:
If consumers can get 90–95% of the perceived benefit for 60–80% of the price, how much is the brand really worth?
But I don't think this applies equally to all brands.
There seems to be a huge difference between:
Commodity-type brands with little emotional attachment
Strong brands with genuine customer loyalty
Exceptional brands that have become part of consumers' identity or lifestyle
Nike is an interesting example.
The brand remains globally recognised, but the investment question isn't simply "Is Nike a great brand?"
It's:
Is the brand still strong enough to generate pricing power, high margins and superior returns on capital?
That's a much more interesting question.
And perhaps the biggest opportunity is identifying companies where the market is assuming permanent brand deterioration when the underlying franchise is actually experiencing a temporary setback.
Equally, the biggest value traps could be companies where investors mistake historical brand strength for a moat that no longer exists.
What do people think?
Are consumer brands genuinely losing their economic moats, or are we simply going through another cycle where the strongest brands will ultimately regain their pricing power?
And which major consumer brands do you think are most at risk of becoming commodities?