- M&S has taken legal action against Aldi, claiming the budget supermarket infringed its trademark on caterpillar-shaped cakes
- From tech to pharmaceuticals, protecting intellectual property is now key to success in many sectors
“I buy this tea for my husband,” an elderly woman says to the camera, gesturing towards a £3 box of PG Tips. But, she adds, turning towards a £1.99 box of Aldi own-brand, “he also likes this one”.
Aldi’s shake-up of the UK grocery market began in the early 2010s with a series of ads like this. With the tagline “like brands, only cheaper”, the German supermarket made its business model clear from the start: it would make products very similar to the ones Brits already knew and loved, and sell them at a fraction of the price.
It was a winning pitch: to the alarm of the country’s leading homegrown grocers, Brits have flocked to the budget supermarket and its German peer, Lidl. In 2013, Aldi had 500 UK stores; less than a decade later that number has increased to 874, and it plans to reach 1,200 by 2025. Over the same period its market share has more than doubled to 8 per cent – bigger than either Waitrose or the Co-op – making it the UK’s fifth largest supermarket, according to data provider Kantar.
But now one UK grocer is fighting back. Earlier this month, Marks and Spencer (MKS) announced that it was taking legal action against Aldi, claiming that the German supermarket had infringed its trademark on Colin the Caterpillar, a popular chocolate sponge cake shaped like an oversized larvae. Aldi released a chocolate cake named Cuthbert the Caterpillar several years after M&S.
M&S is not the first company to make a legal challenge related to trademarks on food. But its latest move could represent the most direct affront yet to Aldi’s “like brands, only cheaper” business model. In a sector where own-brand versions of popular products have become increasingly commonplace, the UK grocer’s decision to stand up for its intellectual property has come as a surprise to many.
But M&S, which was founded in Leeds in 1884, probably did not expect so many Brits would rush to support its foreign rival. Since the legal action was revealed, Aldi has rallied its followers on social media with the announcement that it will relaunch its caterpillar cake, which had actually been retired from its shelves before M&S accused it of infringement. What’s more, all Cuthbert the Caterpillar profits will be donated to charity.
Given the huge amount of publicity now surrounding the dispute, M&S is more likely to reach a private settlement with Aldi, rather than take it all the way to court, said Leighton Cassidy, co-head of intellectual property at law firm Fieldfishers. But whatever the outcome, he thinks the case is unlikely to inspire an intellectual property revolution in the supermarket sector.
After all, Aldi and Lidl are not the only ones that have stacked their shelves with products that look very similar to popular brands. In the caterpillar cake market alone, other versions include Waitrose’s Cecil, Tesco’s (TSCO) Curly, Sainsbury’s (SBRY) Wiggles, and Asda’s Clyde.
Cases like this are “so endemic in the industry”, said Cassidy. These companies are unlikely to start engaging in “a supermarket war”.
Capitalism without capital
But while the proliferation of caterpillar cakes may underline the diminishing power of intellectual property in the supermarket sector, the importance of trademarks elsewhere is only increasing. In recent decades, market power has shifted towards technology businesses that deal in these kinds of intangible assets, Cassidy pointed out, away from those that make money from selling physical things.
The increasing importance of assets you can neither see nor touch, which are often difficult to quantify on a company’s balance sheet, was highlighted in research released by DWS (DE:DWS) this month. The fund manager’s analysis of 768 companies found that while overall earnings had decreased 1.3 per cent on average every year since 2007, businesses with strong brands had grown 1.4 per cent annually over the same period.
A comprehensive study, “Capitalism Without Capital”, published by researchers Jonathan Haskel and Stian Westlake in 2017, outlined the reasons behind this diverging performance. In the 21st century, it argued, developed countries have increasingly invested in the “intangible economy”; from tech firms to pharmaceutical companies, assets such as branding, design, research and development, and software are now “the main source of long-term success”.
An “Intellectual Capital” fund provided by DWS looks to invest in this trend, seeking out companies that are built on strong brands and R&D. It has grown 48 per cent since launching in 2019, surpassing Morningstar’s (US:MORN) comparable index of global growth stocks.
The top holdings are dominated by tech and pharma – two industries that have undoubtedly seen substantial growth on the markets over the past year for reasons besides their intellectual capital. But Colin McKenzie, lead developer of the fund, said single sectors are not driving its performance, adding that the holdings are spread across a wide range of companies.
These include everything from video game firms Nintendo (JP:7974) and Activision Blizzard (US:ATVI), to prized retail brands like LVMH (IT:LVMH) and Nike (US:NKE). Supermarkets, however, are unlikely to be considered for the fund.
Colin the Caterpillar is “very close to my heart”, McKenzie said, as he shares his first name with the M&S cake. But brands have less power in the supermarket sector, he added, as ultimately consumers are simply drawn to the ones that they live closest to.
