Legal Team Says Pringles Aren't Potatoes

Branding Work Undone as Details of U.K. Tax Case Spread Across the Web

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BATAVIA, Ohio (AdAge.com) -- The theory that all a company's employees -- not just its marketing department -- help create the brand came into sharp focus last week, when an obscure tax ruling in the U.K. centered around the contention of Procter & Gamble Co. lawyers and finance people that Pringles aren't potato crisps (chips, in U.S. parlance) made the brand the butt of jokes around the globe.

NOT 99.95 PURE: Only 42% of a Pringle is potato. The rest is wheat and corn flour, emulsifiers, fat and seasonings.
NOT 99.95 PURE: Only 42% of a Pringle is potato. The rest is wheat and corn flour, emulsifiers, fat and seasonings.
The May 20 ruling gained widespread media and social-media currency within hours. Many on Twitter focused on the fact that only 42% of a Pringle is potatoes, the rest being wheat and corn flour, emulsifiers, fat and seasonings. Commenters on news sites speculated, incorrectly, that they're also made from sawdust and ground-up newspapers.

Media coverage included mentions ranging from the U.K.'s Guardian, National Public Radio and Barrons Online, the latter saying, "A British court determined to answer one of the questions that has dogged human understanding since man emerged from the primordial ooze: What the heck is a Pringle, anyway?"

Laugh all you want, but it does make a big financial difference that affects marketing, too. Because a U.K. appellate court, over P&G's objection, ruled Pringles are potato crisps, they'll remain subject to a 15% value-added tax that costs P&G $31 million annually, money that could have gone to lowering prices or more marketing.

The ruling also means P&G won't recover more than $150 million in taxes already paid. While P&G doesn't break out earnings for its brands separately, a look at the company's business-unit results for the fiscal year to date suggests that's equivalent to a full year of net earnings for the brand, not just in the U.K. but globally.

Crisp is not a crisp
Those are pretty good reasons, even at the risk of stoking jokes, to argue that Pringles aren't potato crisps. In an e-mail, a spokeswoman for P&G said VAT regulations in the U.K. are complex. "Several companies in recent years have had such cases in the U.K. to clarify the tax status of food products," she said.

One reason the case has gotten so much play in social media and online, she said, is that the brand has so much interest in the first place. "Pringles is a brand with many loyal fans in the social-media world, with about 2.8 million fans globally on Facebook alone," she said. "They routinely engage in talking about the brand and share fun, unusual news and experiences."

Realistically, far fewer people seemed to notice when P&G originally won its Pringles-is-not-a-potato-crisp argument before a lower U.K. court last year. That a lot more consumers noticed when it lost an appeal of that ruling helps illustrate how social media's influence has grown in just the past 12 months.

Pringles faces few such taxing issues in its home country. In Ohio, for example, Pringles and other snacks are exempt from sales tax, just like all food. P&G has printed messages on Pringles at times, but that hasn't subjected them to the sales tax on magazines and books. And even if the cash-strapped state were to make that case, P&G could always argue Pringles are more like newspapers, which are tax exempt.

Unique advantages
By the way, it's that very non-potato-chip-like aspect of Pringles that created a billion-dollar global brand in the first place. Because of the product's lengthy shelf life and ability to be shipped great distances via container vessels with unbroken chips, P&G was able for years to supply the entire globe out of a single factory in Jackson, Tenn. Try doing that with ordinary potato chips, and the results wouldn't be pretty.

To be sure, Pringles wouldn't be the first brand to face blowback from something its legal department did. A classic case came in 2007, when Johnson & Johnson sued the American Red Cross for trademark infringement for using the Red Cross logo. J&J contended it had exclusive rights to the logo, dating to the 19th century, for such things as first-aid kits sold in stores. The court ultimately disagreed.

Either way, J&J got pilloried in the press and in blogs for suing one of the world's largest humanitarian organizations for using its own widely recognized logo. And that it had to call a member of its PR team back from vacation to help douse the fire indicates there wasn't much advance notice from the legal department.

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