Article
Will dual-branding work for Wendy's and Arby's?
Experts question whether two competing segments can adequately share the love.
August 11, 2009
Now that Wendy's and Arby's are under the same corporate umbrella, it wasn't that surprising when the company announced an international franchise agreement for 135 dual-branded restaurants in the Middle East and North Africa.
But it is surprising that the two brands would consider co-existing in U.S. stores.
"From my experience, I would be worried about that strategy," said William Whitfield, president and CEO of management consulting group Whitfield Enterprises Inc. "Tim Hortons and Wendy's, that worked a lot better. The problem is that the sandwich and the hamburger (segments) have become so competitive, not just within themselves but also against each other's channel market."
Whitfield was a consultant involved with the Branding America Conference and Expo in the 1990s that brought together quick-service brands and non-traditional venues. The trade show organizers found that co-branding was effective only when it expanded the operator's opportunities in daypart, product mix and consumer appeal within the same footprint.
When those three opportunities do come together, operators' return on investment comes in a reduction in labor, management and operational overhead in addition to the real estate costs, he said.
But even the most successful co-branding efforts result in cannibalizing each other's products, Whitfield said. In his work with Branding America, he found that non-traditional co-branded units in travel plazas, for example, resulted in the brand with "the strongest daypart brand awareness tended to be the leader in that daypart."
In the company's latest earnings call, Wendy's/Arby's Group CEO Roland Smith said the company plans to focus on three dual-branding opportunities:
- Internationally, to accelerate growth and attract new franchisees
- In the U.S. market to move into high cost real estate markets and convert existing units to improve revenue
- A U.S. test of three dual-branded stores, with the first to open in Atlanta by mid-2010
"Dual-branding offers two great brands and the best of both menus under one roof," Smith said in the earnings call. "Importantly, dual-branding provides us and our franchisees the opportunity to generate higher sales volume and therefore better return on investment. Recently we have made significant progress on menu development, kitchen layout and store design and we are focused on three specific dual-branded opportunities."
A case for multibranding
Other experts warn that co-branding is not an easy business model, though it does have its success stories.
For example, Kahala-owned Cold Stone Creamery and Canadian-born Tim Hortons recently announced they are expanding their test of co-branded units to Canada in addition to the 50 planned in the United States.
Tim Hortons' chief operations officer David Clanachan and Cold Stone Creamery president Dan Beem said the co-branding effort works for the two brands because they can leverage complementary dayparts, according to an article in BusinessWeek.
Tim Horton's donuts and sandwiches are strong at breakfast and lunch, while Cold Stone's ice cream is strong in the evening.
Analyst John Gordon wrote for Seeking Alpha that Wendy's/Arby's should study Yum! Brands' multibranding strategy. Yum! has built a multibrand network with 4,500 such units in the United States alone.
Like Tim Hortons and Cold Stone, Yum!'s multibranded units paired complementary offerings, like A&W's root beer and coneys with KFC's chicken. A&W director of asset strategy Doug Heinrich said the multibranding helped quickly build A&W's brand awareness and number of units at a lower cost than opening standalones. After cobranding with other Yum! concepts for almost a decade, the company has returned to opening standalone drive-ins.
Gordon said Wendy's/Arby's dual-branding success will depend on its franchise mix, especially finding those who have done well with a combination of Wendy's and Arby's brands. Finding the right mix will likely take some time, however, since the merger of the two brands only occurred late last year.
Branding experts weigh in
Experts say co-branding can work, if done right. Here are what some had to say:
Check egos at the door
Work with a brand/organization that possesses the same values and attitude. Check your egos at the door and commit fully to working together. If you're not going to respect each other and approach the venture with a sincere spirit of cooperation, where the other guy's success is your success, then you should just stick to your own knitting.
Tim Hortons' COO David Clanachan, in BusinessWeek
Find the right mix
It works brilliantly. While I was director of PR for KFC, Yum! tried various combinations of co-branding with its owned brands. Different brand combinations worked differently in differently locations with compatible socio-economic audiences. Once the right mix of restaurants was determined it was a no brainer to build out a co-branded site because the economics of building one site for two restaurants made the ROI on those properties very attractive.
Rick Weber, global branding and communications expert
Understand your customer
The key is understanding the consumers that frequent the brands. Once you understand the consumer, where these "key" consumers exist and in what quantities, you can effectively co-brand.
Too often I've seen QSRs approach the markets as "everyone is our customer." Yes, but not all customers exist in the same quantities within their overall footprint. Some customer groups are better penetrated, some customer groups spend more, some customer groups frequent more and some customer groups have multiple positive attributes.
Tom Spencer, marketing and business development expert
Corporate effort
Co-branding can be effective by reducing the cost to develop and getting multiple brands in front of your target customers. The challenge comes down to operations. If the brands are run independently at the corporate level, you will find it difficult at the store level to integrate operations. It can be done, but it takes a focused effort and commitment throughout the organization to make it work.
Lyall Newby, president at consulting firm Performance Leadership LLC
Issues to consider
Co-branding restaurant concepts can be a very smart way to accelerate distribution and leverage capital investment and operational expenses. But they are not without issues and new co-branding ventures need to be thought through carefully. Some of these include:
- Limited menus. In most cases, the concepts end up scaling back menus. This can be an annoyance for customers who come into Pizza Hut looking for wings, or Taco Bell wanting Chalupas.
- Operational efficiencies often lead to weaker operations. It's hard enough to get managers and front-line employees to learn to execute one concept. Learning two is really about twice as difficult. And as the site matures, reducing labor and management expense through shared resources will be come more and more tempting.
- Sibling rivalry. I've worked with a number of joint concepts and have experienced more than my share of "he said/she said" and blaming problems on the sister concept. Yes, in many cases things work out fine, usually the product of good management across the board. But it's not at all unusual for things to get sticky.
Good idea. Great potential. But it's never easy, is it?
Bill Aho, partner at SagePoint Consulting
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