The conundrum of cobranding

In 1995, marketing consultant Ira Blumenthal made a bold prediction during a conference on restaurant branding in Albuquerque, N.M: In the new millennium, cobranded concepts will be widespread in the industry. Merging two brands would widen menu variety and reduce the veto vote when groups dined out. The credibility of each brand would help the other, and multibrand stores would draw greater traffic and better maximize costly real estate investments. In the end, operators and customers would be happier in a cobranded world.

 

Twelve years and thousands of cobrand successes and failures later, Blumenthal admits his vision hasn't been fully realized. While a great idea in principle, cobranding is challenging in actuality. Where two or more brands may work well on their own, when paired under the same roof, they can clash operationally.

 

How best to create a cobranded unit also becomes a difficult challenge. Is it best to close two existing units in a market to form a unified store, or is it better to enter a market where neither brand exists and roll out a new cobranded unit?

 

And when it comes to marketing, is there a chance customers might become confused about the combined identities of brands they're used to accessing on their own?

 

An executive froma chain with numerous cobranded operations declined to speak on the record, but said, "The truth is, I don't think we've really figured it out."

 

Such limited cobranded growth doesn't dampen Blumenthal's enthusiasm for it. He believes its time is coming, albeit slowly.

 

"Those of us who waved the flag in the early and mid-nineties were way ahead of our time," said Blumenthal, president of Co-Opportunities consulting. "Slowly but surely, we'll see more successful cobranding ventures. ... Where you take two brands and leverage their strongest day parts, it makes all the sense in world."

 

 

What's clear is cobranding has worked best for Yum! Brands, owner of the KFC, Taco Bell, Pizza Hut, Long John Sliver's and A&W All American Foods chains. Currently, it operates approximately 3,400 multibrand units, 95 percent of which are in the United States. By comparison, its nearest cobrand rival is Carl's Jr. and Green Burrito, whose combined units total 300.

Nearly two decades ago, when PepsiCo owned KFC, Pizza Hut and Taco Bell, it made a tasty troika of all three concepts by housing it in a 3,000 square-foot space in Overland Park, Kan. The experiment didn't work well, but the company didn't give up.

 

"We found we weren't able to realize the efficiencies we hoped to have," said Anthony Wedo, a former vice president at KFC back then. He now is the chief executive at Mainline Management and Capital Advisors in Philadelphia. "Ultimately it became too confusing operationally to do it in one location."

 

Yum and other chains, Wedo said, have learned cobranding isn't the answer in every situation, but where it does work, it can work very well. Industry sources say good cobrand operations post sales increases of 15 to 25 percent over single-brand units.

 

"I am an advocate of cobranding where you combine (units) with sales under a million per year," he said. "If you have a Pizza Hut and a KFC doing a million each, why close them to combine them? But where you have a KFC doing $850,000 and a Taco Bell doing the same, you can combine them to get a store doing $1.4 million and gain a lot of efficiencies."

 

Ultimately, Wedo said, properly positioned cobranded stores enjoy increased unit-level profitability even when the combination shaves top-line revenue. And with real estate prices continuing to soar, cost savings can be significant.

 

"Cobranding is one way you can increase distribution without destroying your profitability," he said.

 

Yum did not return calls for this story, but in quarterly analyst conference calls its executive team regularly champions cobranding as crucial to its domestic and international growth. As CEO David Novak stresses during every call, in a choice- and convenience-driven fast-food marketplace, Yum currently is and always wants to be the leading multi-option provider.

 

The franchising portion of its Web site claims its most successful cobrand combo is the KFC-Taco Bell outlet, of which it operates more than 700. It also cites 500 U.S. markets where it wants toopen the taco-and-chicken stores.

 

Pizza Hut's most significant cobrand is the newly developed WingStop fried wings chain; there are 800 such units operating in the U.S.

 

Many Long John Silver's and A&W units already were joined at the counter when Yum bought both chains from Yorkshire Global Brands in 2003. Yum since has made several other successful brand combinations hinged on LJS.

 

"Right now, the leader of the pack in terms of cross-utilizing equipment, cross-training employees and figuring out a way to integrate systems is Yum! Brands. They do it best," Blumenthal said. "There are some strong opportunities for growth there, and they've done it along time."

 

Growth of the Carl's Jr. and Green Burrito cobrand struggled for years before getting on the growth track. The two concepts paired up in 1993, but the combined restaurant didn't grow steadily for some time due to internal battles at each chain. Green Burrito's franchisees balked at changes they blamed on the cobrand, saying they cheapened their products and diluted the strongly Mexican brand's identity.

 

In 1995, Green Burrito partnered with Rally's Hamburgers to open 14 cobranded units, but by 1996, Rally's was closing the units and backing away from plans to open as many as 500 cobranded units.

 

The 300th Carl's Jr.-Green Burrito unit opened in January, and the company said it's planning on more. The kinks apparently have been worked out, however, as the Hardee's burger chain, also owned by Carl's Jr., recently begun cobranding with a Green Burrito re-brand dubbed Red Burrito.

 

Carl's Jr. declined to talk about its cobrand operations.

 

Atlanta, Georgia-based RTM Restaurant Group, operator of nearly 800 Arby's restaurants and 275 Mrs. Winner's Chicken & Biscuits restaurants, spent eight years trying to cobrand several concepts with Arby's before abandoning the effort in 2003. When hookups between Arby's, Del Taco, Lee's Famous Recipe, Mrs. Winner's, Sbarro and T.J. Cinnamons didn't prove profitable, the group shifted all its development efforts to Arby's. Fewer than two dozen of those cobranded units remain in operation.

 

An RTM spokesperson said no executives were available at press time to comment on its cobranding efforts, but in a 2003 article in Nation's Restaurant News, spokesman John Gray said, "We found that we just couldn't execute the delivery our guests wanted. There were too many moving parts. So we're better off maximizing our strongest brand, which is Arby's."

 

 

While two brands must get along operationally, market analysts say they first must benefit each other at the front door. Brands that cause customers to pause and wonder why they're paired together are destined for a struggle, said Jim Hughes, managing director and founder of The Brand Establishment in Irvine, Calif.

 

Where it might

What's Important Twenty years ago, cobranding was touted by many as the future of the restaurant industry. While some companies have succeeded by combining brands under one roof, not all have; the challenge has proven formidable for some, profitable for others. Where cobranders have succeeded most is in blending brands that complement each other and gaining efficiencies that increase unit-level profitability.

seem enticing on the surface to pair brands that could potentially draw lots of customers, if the brands don't complement each other by presenting the same message  — such as value and convenience — customers become confused.

 

"It works when you unite those voices and let both brands serve the same audience simultaneously," Hughes said. "Each brand gets to leverage the value of the other."

 

A prime, but non-restaurant example of this, he said, is the cobranding of KB Homes with Martha Stewart Living. According to KB's Web site, buyers of its homes can get the Martha Stewart treatment which includes touches "like wainscoting, picture-frame molding, open shelving, landscaping packages designed by Martha's personal gardener, and so much more."

 

In both cases, each brand lends credibility to the other, Hughes said, and restaurateurs seeking to cobrand must find a similarly synergistic partner.

 

Jack Gordon, CEO of market researcher AccPOLL, agreed. When he works with brands seeking to pair up for potential marketing sponsorships, he helps clients understand how each might "go together in the consumer's mind. ... . What we're seeing more of now is brands that want to see how their image interacts with other brands before they cobrand."

 

In the past, he said, companies have failed to approach cobranding scientifically and methodically enough. Where some restaurant companies thought combining roast beef and chicken operations would boost sales, sales showed customers thought otherwise.

 

"The notion that 'something for everybody' is interesting, but it's a simplistic way of dividing up the marketplace on choice alone," Gordon said. "Historically, (cobranding) has been done largely unscientifically. It needs to be a more strategic partnership between both brands."