Top 100 brands in Canada ranked in Report on Business magazine
A brand is much more than a logo or a slogan; it's a total approach to doing business. The successes and struggles of companies such as Lululemon, BlackBerry and Yellow Media over the past decade show how valuable a brand can be, and how quickly its value can shrink if you don't nurture and renew it. Working again with the Toronto office of Brand Finance, the leading global brand consulting firm, we present our second annual ranking of Canada's most valuable brands. Embedded in the list of 100 are some sure bets, as well as some surprising falls from grace (see the aforementioned Lululemon). This year, we've looked more closely at Canada's leading corporations abroad—and how they translate their core brand promise into a formula with global appeal.
No. 3: Scotiabank
Canada's Big Five banks have earned an international reputation as safe havens for your money. As if there were ever any doubt, the World Economic Forum announced last October, for the sixth consecutive year, that our banks are the soundest in the world. At home, we largely take them for granted and assume that one bank is pretty much the same as the next. But if you travel outside of Canada to any of the countries where the Big Five do business, it's a very different story.
Through its long history of dealing with clients in the Caribbean and Latin America, Scotiabank has learned how to pay close attention to regional and cultural differences. "With regards to the brand, you distill it down to the simplest statement, and ours is that we like to be down-to-earth and approachable. So, in Canada, 'You're richer than you think' is the most recognizable [banking] tagline in the country," says John Doig, Scotiabank's chief marketing officer. "But when you translate it into Spanish in Mexico, it doesn't work. 'Riches' means something different." Instead, Scotiabank uses the slogan "Discover what's possible" in most of its Latin American markets.
Scotiabank operates in 55 countries, and 46% of its $6.7 billion in earnings in 2013 came from abroad. While Scotiabank looks outside North America for long-term growth, TD Bank has used its strong retail brand at home to establish a strong presence in the Eastern United States. TD believed that the same basic retail brand promise—a convenient and comfortable customer experience—would appeal to U.S. consumers. So, when TD bought New Jersey-based Commerce Bank for $8.5 billion (U.S.) in 2007, TD CEO Ed Clark called it "the TD Canada Trust of the United States." In Canada, TD uses the tagline "Banking can be this comfortable" for its retail operations. In the U.S., TD's tagline is "America's most convenient bank."
"We wanted an organization that looked and felt like TD," says Dominic Mercuri, executive vice-president and chief marketing officer at TD. "Commerce Bank had a similar type of brand experience as the one we had. There was a good fit and that wasn't all by accident." Mercuri adds that banks need to be sensitive and respectful enough to identify local differences even within foreign markets. "In New York City, we are open seven days a week," he says. "But if you go down to Myrtle Beach, South Carolina, you likely won't find our stores open on Sunday. It's easy to get to a place where you could say [banks] all offer the same thing—which is true. We all have similar product mixes, but we all deliver those products and services in a different and unique way."
In comparison to Scotiabank and TD, Royal Bank—Canada's largest bank—has had mixed results abroad in recent years. RBC has leveraged Canada's international reputation for stability to become the sixth-largest global wealth manager and one of the top 15 investment banks in the world. Much of RBC's strong growth in profits and in brand value is coming from its global capital markets and wealth management operations, and it has surpassed TD to reclaim the No. 1 spot in our brand rankings this year.
But RBC suffered a setback in its international aspirations in 2011 when it sold off its money-losing network of 424 retail branches in the United States. RBC executives conceded that the purchase of North Carolina-based Centura Bank in 2001, then the biggest foreign acquisition ever by any of the Big Five, had been a failure. Still, they said they would like to take other approaches to building up RBC's U.S. retail business.
Edgar Baum, Brand Finance's managing director for North America, says that RBC, currently ranked 16th in the world by brand value, could be poised for even greater success. "[RBC] has a reputation for very sound management practices, which has helped it become a top 10 global brand as an asset manager," says Baum. "Measured by enterprise value, RBC is also worth more than [some of the top 10 banks in the world], but RBC just doesn't have as strong a brand internationally. I think that if they manage their brand responsibly, it could drive them to be one of the world's biggest."
Like RBC, Bank of Montreal, the smallest of the Big Five, has also had some struggles in the U.S., but it is still in the game. In 1984, it bought Harris Bank, then the third-largest bank in the Chicago area. BMO Harris Bank, as it is now known, remains a big player in the U.S. Midwest. And, in 2011, BMO spent $4.1 billion (U.S.) to buy another large Midwestern bank, Milwaukee-based Marshall & Ilsley Corp., although its performance so far has been lacklustre.
CIBC, meanwhile, stands alone as Canada's stay-at-home bank. When stacked up against the other Big Five banks, CIBC generates the lowest proportion of its revenues and earnings from abroad. Increases in CIBC's brand value in recent years have stemmed almost entirely from the steady growth of the Canadian banking sector.
CIBC is still suffering a hangover from its disastrous plunge into Wall Street investment banking in the late 1990s and early 2000s. In 1997, the bank bought brokerage firm Oppenheimer & Co., and folded it into its CIBC World Markets division. But the division soon became embroiled in two of the biggest scandals of the era—Global Crossing and Enron—and, in 2004, CIBC began scaling back its American investment banking business.
Beyond the safe and relative predictablity of our domestic markets, both the rewards and the risks of the banking business are proving to be much greater for Canada's Big Five.
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No. 58: Methanex
Vancouver-based Methanex has become the world's biggest supplier of methanol by keeping things simple: one product and one vision—to always deliver to its customers, no matter how rough the going may get.
In November, 2011, that commitment was severely tested when street protests erupted in Damietta, in Egypt's Nile Delta, over plans by Canadian agricultural giant Agrium Inc. to expand a fertilizer plant. Methanex has a factory nearby, and the company shut it down for 20 days—but only as a precaution. In fact, none of the protesters' ire was directed at Methanex, and it didn't miss a single shipment to its customers.
For management in Vancouver, the experience reinforced the value of maintaining good local relations. "If you don't have a strong brand in the community, you become another faceless international company," says Wendy Bach, Methanex's vice-president of human resources. The company has one plant apiece in Canada, Egypt, New Zealand and Chile, two in Trinidad, and it will open two in Louisiana later this year. "What's been important to us in Egypt and other regions is to develop a trust that we're going to operate safely and reliably," adds Bach.
Building trust is a challenge for any large chemical producer—it's not a sector that tops popularity polls. And methanol is not a sexy or cutting-edge product. It used to be known as wood alcohol, because it was a byproduct of the decomposition of wood. Today, it is manufactured primarily from natural gas. About two-thirds of methanol output is used in a wide variety of industrial and consumer products, including plastics, plywood, permanent press fabrics, paint and windshield cleaner. The other third is used mainly in fuel—as a gasoline additive and in the making of biodiesel.
Methanex was founded in 1992, after Ocelot Industries, an oil, gas and chemical conglomerate, split itself into three. Over the next few years, Methanex began buying plants and storage facilities around the world, as well as a fleet of tankers to carry chemicals and petroleum.
In 1997, the company was the first to be certified under a voluntary set of global environmental, health and safety standards, called Responsible Care, developed by Canadian chemical producers. "I remember attending one of my first [employee lunch meetings] where the CEO told a story about how you never, never want to go to a door and have the conversation with the wife that the husband is not coming home and she has little ones crying in the background," remembers Bach, who joined Methanex in 2000. "This is a really different company."
Cultural sensitivity is another key component of building trust. Just 11% of the 4.3 million tonnes of methanol the company produced last year came from its plant in Medicine Hat. Methanex has sales offices in 20 countries, and staffs them almost exclusively with locals. "You can't be a global commodities company and not have that connectedness across cultures," says Bach.
Safety and sensitivity also pay off. Methanex's annual sales have almost tripled to $3 billion since 2000, and it now has about 15% of the world methanol market.
Looking ahead, Methanex plans to add about five million tonnes of production capacity by 2020 and boost its workforce by more than half. Keeping things simple may get quite complicated.
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No. 97: TMX Group
One of Canada's most successful resource companies doesn't drill for oil or gas or extract minerals. Instead, it runs the most important marketplace in the world for issuing and trading resource stocks.
Toronto's TMX Group is the parent of the Toronto Stock Exchange (TSX) and the junior TSX Venture Exchange (TSXV), which together host more energy and mining listings than any other stock exchange. Last year, resource companies small and large raised a total of $6.8 billion on the TSX and the TSXV, accounting for 45% of total global resource equity financings.
"We consider ourselves to be a waver of the Canadian flag, raising awareness about opportunities and advantages here," says Kevan Cowan, president of TSX Markets and group head of equities for TMX. "Canada has built an ecosystem that includes the exchange, investment bankers, lawyers, accountants and engineers, and that distinguishes us on the world stage."
The finance ecosystem for resource companies has a long history, dating back to the 19th century, and to the old stock exchanges in Montreal, Toronto, Winnipeg, Calgary and Vancouver. Unfortunately, much of that history was undistinguished. In the 1930s, so many Canadian boiler rooms were flogging dubious penny stocks by telephone to U.S. investors that The New York Times and Time magazine both published exposés. In 1994, a Times story declared, "Welcome to Vancouver, where the flim-flam is common and protections are few." And, of course, there was the Bre-X blow-up in 1997.
In 1999, the old city exchanges began to merge into the Canadian Venture Exchange, which listed junior companies too small for the TSX. In 2001, the TSX bought the Venture Exchange, and in 2008 the TSX and the Montreal Exchange merged to form the TMX.
TMX executives have had to wrestle with the same basic dilemma that has confronted Canadian securities regulators for decades: How do you protect investors from scams without making it too difficult for genuinely promising young companies to raise money?
The TMX's typically Canadian compromise was so-called proportionate governance—different rules for different-sized companies. TSXV-listed firms don't have to meet the same stringent audit standards and onerous certification requirements that govern CFOs and CEOs of TSX-listed companies.
"The idea was to manage the regulatory risk. [The TMX] developed listing standards that were tailored for early-stage companies, but combined it with a very rigorous regulatory regime to build investor confidence," says Cowan. "Many people around the world have tried to create a two-tier exchange system, but ours is the most successful."
The compromise is appealing to resource issuers and investors—both of whom are betting on projects in remote and risky locales around the world. "[During the last global downturn] the question was asked whether Toronto will become the next global finance centre. We managed to pull it off in the mining sector," says Brand Finance's Baum. "The advantage of the TMX is that you can position yourself in a country where your risk premiums are reduced."
Brand Finance calculates TMX Group's brand value at $308 million. That puts it at No. 97 in Canada, but among the most valuable of the major international stock exchanges—not far behind the New York Stock Exchange (valued at $365 million U.S.).
A total of 314 companies now listed on the TSX and TSXV are headquartered abroad. TMX officials actively court others. Over the past five years, the number of Australian resource companies listed in Toronto has nearly tripled to 33.
One of the most successful is Melbourne-based OceanaGold Corp., which has mines in New Zealand and the Philippines. The company listed in Toronto in 2007, even though it already traded in Australia and New Zealand. It then raised $100 million in a share offering.
"The TSX is arguably the centre for mining companies and mining finance," says Darren Klinck, head of business development for OceanaGold. Last October, the company took over Vancouver-based Pacific Rim Mining and its El Dorado gold project in El Salvador. "This stronger [presence] in the North American [capital] market was one of the contributing factors," says Klinck.
The overall quality of Toronto's junior listings seems to be improving, too. Since the TSXV launched in 2001, 700 companies have graduated to the senior exchange, either directly or through merger or acquisition.
"TMX is an ambassador for best practices and a unique competitive approach to capital markets," says Cowan.
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METHODOLOGY: HOW DOES BRAND FINANCE CALCULATE A BRAND'S VALUE?
It's complicated, but the major steps in the process are fairly straightforward. Basically, a brand's value is the current lump-sum value of the portion of its total future revenues attributable solely to the brand itself. Got that? Think of it this way: Suppose you wanted to make and sell Coca-Cola under licence. You'd certainly pay more than the cost of water, sugar and other ingredients, wouldn't you? That's because Coke is much more than a drink; it's a 122-year-old global institution.
Brand Strength Index (BSI)
Brand Finance scores the brand from 0 to 100, using tangible measures, such as financial ratios, and more subjective ones, such as consumers' emotional connection to the brand.
Brand Royalty Rate
Licensing agreements are common in many sectors, from clothing to technology. If companies in a sector typically pay between 5% and 10% of revenue to a brand's owner for a licence, and a brand's strength score is 80, its brand royalty rate is 9%.
Brand Revenues
Brand Finance consults forecasts of the after-tax revenues of a brand based on historic revenues, investment analysts' estimates, economic growth projections and other factors. For one brand among several owned by one company, this can be a challenge.
Brand Value
Multiply the yearly forecast revenues by the brand royalty rate. Take the result for each year and calculate the so-called discounted value or net present value. For example, if long-term interest rates are 3%, $10 million 10 years from now is worth $7.4 million today
The Top Brands ranking has been expanded to 100 companies this year from 50 companies last year. Revenues are from Report on Business magazine's Top 1000 or company reports. Revenue is for the 2012 calendar year, or the company's closest fiscal year to that.