Three Longs & Three Shorts

China and new tech generation shake old notions of good branding

Author: John Gapper
Source: FT (
Only 22% of Searches on Amazon Include a Brand Name
Author: Juozas “Joe” Kaziukėnas
Source: Market Place Pulse (
John Kay, a British economist in his brilliant book on corporate strategy – “The Foundations of Corporate Success” cites among the most sustainable sources of competitive advantages as Brand, Architecture (external and internal networks), Strategic Assets (location, licenses, etc) and Innovation (the least sustainable of them all). Investors, including the legendary Warren Buffet look for companies with such enduring ‘moats’ whilst making their investment decisions. However, increasingly ‘Brand’ as a sustainable moat is being threatened and questioned not least because of the recent Kraft debacle, a Buffet investment in itself. We feature twin articles emerging in different places this week. First, John Gapper of the FT using the Kraft context, in this succinct piece, takes a shot at explaining why the churn rate in the world’s top brands is rising. He ascribes three key reasons:
–             globalisation (brands from emerging economies such as China are going global threatening incumbents),
–             technology (recently built brands such as Amazon, Google are from the tech world which naturally lends itself to obsolescence) and
–             generational change (the millenials’ consumption preferences is not only vastly different from its previous generations but also changes much quicker than any of the preceding generations).
Second, Joe Kaziukenas, the founder of Market Place Pulse talks about how among the 100,000 most popular searches on Amazon, only 22% include a brand name. Consumers are increasingly searching for generics “Running shoes for women” as opposed to Nike or Puma and as he cites in the article “AA batteries” rather than “Duracell”, which has made Amazon’s inhouse brand AmazonBasics the largest selling brand for batteries. Similarly, in the Kraft context, one can’t ignore the impact of Costco and Walmart’s private labels gaining share displacing incumbent brands either. Perhaps, John Gapper should have had a fourth bullet in his list of reasons for the decline in brands.
At Marcellus, we are wary that brands from a consumers’ perspective is different from that of an investor. For eg, Asian Paints’ success over the past 70yrs is often ascribed to its brand strength. However, research on Asian Paints as elaborated by our colleague Saurabh Mukherjea, in his book – ‘The Unusual Billionnaires’, suggests something else. Indeed, we find John Kay’s ‘Architecture’ as a far more enduring moat. Understanding a company’s ‘Architecture’ or what our fund manager, Rakshit Ranjan prefers to refer as ‘the DNA of the company’, involves looking at companies from the inside-out, often requiring interviewing several people over months on end, including customers, suppliers, ex-employees and other parts of the company’s ecosystem. How these various entities interact with the firm, their incentives and systems and processes that binds them is a far enriching experience in terms of understanding sustainable moats and often not well understood by the market (due to the sheer grind involved in the process) and hence not reflected in the price.


Note: the above material is neither investment research, nor financial advice. Marcellus Investment Managers is regulated by the Securities and Exchange Board of India as a provider of Portfolio Management Services and as an Investment Advisor.