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Multi-Branding offers all-in-one eats
It's lunchtime and you're weighing the choices: chicken or a taco? Now you can have both, at the same location -- and grab a root beer float to wash it all down.
February 1, 2003
Sun February 2, 2003 NEW YORK (Reuters)- It's lunchtime and you're weighing the choices: chicken or a taco? Now you can have both, at the same location -- and grab a root beer float to wash it all down.Multi-branded outlets are the latest trend in fast food as restaurant companies fight to grab Americans' fickle taste buds by offering a wider variety of meal choices under one roof with, say, a Taco Bell and a KFC restaurant sharing a single location. While airport and shopping mall food courts have offered that kind of all-in-one choice for years, individual companies are adopting the strategy as a key growth driver in the competitive fast-food wars. Multi-branding helps companies like Yum Brands Inc, parent of KFC, Taco Bell and Pizza Hut, wring additional returns from the fixed costs of a building or plot of land. Then they can compete more effectively against fast-food behemoth McDonald's Corp MCD.N , whose burger restaurants are the highest-grossing in the business. Yum was one of the pioneers of multi-branding, installing its first dual-brand restaurant about a decade ago in a Virginia hamlet called Tappahannock. The results were so "phenomenal," said Chuck Rawley, Yum's chief development officer, that the company immediately expanded the strategy. Now 1,850 of its 32,650 restaurants are multi-branded, accounting for almost $2 billion, or 9 percent, of total sales. Yum plans 6,000 such outlets by 2007. Consumers prefer the multi-branded restaurants to traditional outlets by 6 to 1, according to Yum's research. "It really started out as a real estate solution for Yum," said Neil Stern, a partner with Chicago retail consulting firm McMillan/Doolittle. "The genesis was, if I have an underperforming KFC, then let's add a Taco Bell and the incremental volume could be enough to take that location from a marginal location to a good location," he said. A KFC would normally cost $250,000 to remodel, but for an additional $150,000, Yum can add a second brand, Rawley said. Paul Barron of BMG an industry consulting firm stated, "operations will still be at the top of the ladder on improvement areas for multi-branding. With more than one food offering and the many quality requirements and even different preparation procedures. Keeping inline with industry service expectations will require some new innovation on the technology fronts of customer facing solutions." Refining ways to interface with the customer to capitalize on these expensive efforts will be a unique challenge for the industry.30 PERCENT TO 40 PERCENT SALES INCREASES"When we remodel on a single-brand basis, we get 5 percent to 7 percent sales increases. When we remodel as a dual brand, we get 30 percent to 40 percent sales increases. So it's a phenomenal return on the incremental investment," Rawley said. A stand-alone KFC takes in an average of $900,000 a year, but when combined with a Taco Bell, that location yields sales of $1.3 million. That puts the Yum outlet in firing range of McDonald's, which typically earns $1.65 million per location, according to Chicago food-service consulting firm Technomic. Yum has begun pairing its strong national brands with its lesser-known units, hamburger/root beer chain A&W All-American Food and seafood chain Long John Silver's. Allied Domecq Quick Service Restaurants, a unit of Britain's Allied Domecq Plc ALLD.L , sees a similar benefit in combining its Dunkin Donuts and Baskin Robbins brands under one roof, sometimes with the Togo's sandwich shop added in to provide a lunch option. "When you put the brands together, you compete with concepts generating over a million (dollars) in sales," said Mark Richardson, ADQSR's vice president of multi-branding. Allied Domecq's strategy differs from Yum's -- instead of providing multiple lunch options, the company keeps customers moving through the store at all hours by offering choices tailored for breakfast, lunch and snacks. While a Dunkin Donuts counts on heavy morning crowds, with multi-branding "you've got traffic in there all the time," said ADQSR franchisee Ayiesha Selwanes, whose family owns 11 restaurants in the New York area. And because returns are higher, franchisees can pick higher-visibility locations and remodel stores to be larger and more comfortable -- the qualities consumers are demanding, Selwanes said. But multi-branding has its limits, according to Dennis Lombardi, executive vice president at Technomic. With Allied Domecq the day parts are very focused and the need to get maximum throughput with limited loss of quality is and continues to be a challenge that this multi-brander will face, stated Paul Barron, QSR industry consultant. Keeping the customers returning to use all facets of the multi-brand unit will be the key to the success of multi-branding.IDENTITY CRISIS?"It's not a panacea for every restaurant out there," Lombardi said, adding that No. 1 fast-food chain McDonald's probably wouldn't have the space, and already operates at its volume capacity in most stores. In addition, the burger giant might overshadow any other brand added into the store, Stern said. The concept could succeed for McDonald's partner brands, like Chipotle or Boston Market, he said. But it requires a high level of cooperation -- for instance, sharing marketing, labor or engineering costs -- and some brands guard their autonomy too closely to allow for such cross-fertilization. Companies like Yum can't go on adding brands indefinitely, Stern cautioned. "At some point, you've gotten as much sales as you're going to get out of that location," he said. And companies need to preserve the intangible asset of brand equity even as they compress multiple restaurants in a single outlet. "From a branding standpoint long-term, do you muddy the waters by blurring the concept?" Stern asked. So far, he said, that has not happened. Lombardi warned that vigilance and agility are necessary for keeping any concept afloat in the restaurant business, which he compared to the old Vaudeville act where a person puts a plate on a stick, sets it spinning, then does the same with a second, third and fourth plate. "Pretty soon the first one's slowing down and you have to run back and get it spinning again. That's how it works in the restaurant business -- it's a balancing act," he said.
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