Reaping the rewards, not the headaches
Co-branding is back, but if it's done poorly, it can generate operational difficulties, do little to generate traffic and may even hurt the brand. Here's how to do it so that both brands win.
Mo Boutara was drawing up plans for his yogurt franchise last year when the economy tanked. But rather than toss those plans into the circular file, he sensed an opportunity.
Boutara changed his plans to target mostly co-branded units with other businesses that have some extra space and a need to generate revenue. So the first unit of his Go-Go Yogurt concept was in a smoothie franchise in Colorado.
"Our plan is to go into an existing business that's struggling because of the economy, and be a hero by adding a product that's helpful and actually good for you," said Boutara, the company's CEO. The concept began franchising this year, and he said he has deals to open 13 units, with eight more in the pipeline.
Co-branding appears to be an increasingly popular strategy among franchise brands seeking to leverage existing assets to boost revenues by giving consumers more reasons to walk through the front door - if, that is, the strategy is done correctly, experts say.
Go-Go Yogurt is a new concept out of Colorado that is expanding its franchise as a co-brand along with other concepts.
Done poorly, co-branding can generate operational difficulties, do little to generate traffic and may even hurt the brand.
"It's not a panacea," said Dennis Lombardi, restaurant consultant with WD Partners. "It's not a silver bullet. It doesn't work for everybody. But when done right, it will improve traffic to the site."
Definitions vary, but a co-branded or dual-branded location is a merger of two distinct brands that sell products in the same room. Companies have been using the strategy for years, especially when they own multiple brands.
Getting it right
Finding the right combination of brands that can go onto a site is a scientific exercise, and some companies spend years testing various options in different locations to get the right mix. Yum Brands has co-branded its various brands for much of the past decade, trying out various pairings of its Yum Brands brands.
Not every combination works. When Focus Brands bought Cinnabon in 2004, it tried out combinations with its other treat chain, Carvel, believing the two would be a good combination. Yet Cinnabon works best in high-traffic areas like malls where consumers can be lured by the aroma of cinnamon. Carvel is more of a destination, and any consumer who goes there would usually just replace their ice cream cone with a cinnamon roll. "When we put it on the street, versus a mall or an airport, the one thing that gets lost is the aroma," said Geoff Hill, president of Cinnabon. "The door is our enemy."
So Focus pulled back on those efforts, though it would still co-brand Cinnabon and Carvel in malls and airports. Now Cinnabon is placing express units inside Schlotzsky's locations. That combination has worked better, Hill said, boosting revenues for franchisees with a modest investment while taking the Cinnabon brand into areas that may not have a high-traffic shopping area - such as rural Texas. Schlotzsky's have many more customers and the products are complementary.
Early success in tests led Tim Hortons and Cold Stone Creamery to expand the co-branding of their two concepts.
"A lot of people who get into co-branding don't understand the complexities, nuances and challenges," Hill said. "It's easy to say, 'Yeah, this concept makes sense. There's shared real estate cost, shared labor and twice the volume.' The problem is one plus one doesn't always equal two. Because of design and layout issues, the potential is half of what it was by itself, and a lot goes into it."
Hill said the company tests to determine which combination works. It looks not only at the brands, but the location, and focuses on the potential returns. "If there's no return for the brand, the franchisee, or the other brand, then it's not worth it," he said. But, he added, "If it works, when you find the right scenario, it can be very rewarding for the franchisee and the brand."
Co-branding is a key component of NexCen Brands' plans for its Great American Cookie and Pretzelmaker brands, at least when they enter malls and lifestyle centers. The company has 70 units in which the two brands are merged into a single location, and another 70 where one or the other is dual-branded with the Freshens smoothie concept.
"We're using a co-brand opportunity when we have a strong, captured audience, like a high-volume mall," said Chris Dull, president of NexCen Franchise Management. "We're able to capture more of the customers' dollar by offering a broader line of products."
Like Focus's experience with Cinnabon, the company found that its products are impulse purchases that are unlikely to generate additional traffic off the street, but could generate revenues by giving passersby more items to buy.
"If you're in the cookie business and want to add Pretzelmaker, it's a nominal amount of money - $10,000 to $15,000," Dull said. "Take a unit that's trudging along at a half-million dollars a year. Adding that business maybe adds $150,000, but your incremental labor is small. You're not paying any more rent, any more utilities. You have the same fixed costs, and you're able to use another revenue stream."
Co-branding can work in different ways. Companies can pair brands that are strongest at the same daypart and add revenue either by introducing a complementary product, like a dessert item to a sandwich shop, or by adding products that eliminate the "veto vote."
Lombardi noted, however, that combining two lunch or dinner brands works only when the diner thinks they're getting two full menus. "They tend to work best when the customer believes that both brands on the site are full, legitimate brands and not added as an after-thought, small express unit," Lombardi said.
In many of the more recent cases, especially among specialty brands, the companies are bringing together concepts that are strongest at different dayparts and serve products that would seem to be complementary. Dunkin' Brands has for years combined its morning heavy Dunkin' Donuts brand with the evening-focused ice cream concept Baskin-Robbins.
Along that same line, Cold Stone Creamery and Tim Hortons are in the process of co-branding 100 locations in the U.S. The two tried two units beginning late last year, and "sales immediately went up, and we started having additional conversations to expand this," said Lee Knowlton, chief operating officer at Cold Stone's parent company, Kahala.
Tim Hortons does most of its business in the mornings and into lunchtime, with soup and sandwiches, while Cold Stone's business is heaviest at night. "They're a natural fit," Knowlton said.
Both brands could use the boost. Cold Stone, struggling with closed units and halted growth, is trying to reverse declines in average unit volumes. And while Tim Hortons' sales continue to surge in Canada, growth at its U.S. units have been harder to come by.
There are some complexities to the co-branding. Cold Stone units are smaller than a typical Tim Hortons and there is no drive-thru - key for early-morning commuters in need of a quick coffee on the way to work. And to fit the donuts and coffee Cold Stone must remove one of its stones, reducing the number of people who could be served during the peak summer season.
Yet Jeff Curran, who recently added Tim Hortons to his Cold Stone unit on the Ohio State University campus in Columbus, Ohio, said that he needs a single stone 90 percent of the year. "We can handle our normal business load, except during our peak times on summer evenings," he said.
Curran said the addition of the Tim Hortons "definitely tightened space," but he was surprised that it would go in at all. "At first I thought, 'there was no way this could fit,'" he said. Still, he said the addition was relatively simple. He'll add only one or two workers and won't see an increase in rent or utilities. He also believes the addition to be a simple way to increase revenue. "It's too early to get an idea on sales," he said, "but we'd be happy with making my goal of a $100,000 incremental sales increase. That would be nice." That would also represent roughly a 25-percent sales boost.
So far, Curran said, the combination is working. And consumers are not sticking to just Tim Hortons or just Cold Stone. They're getting some coffee when they pick up their ice cream cake, or getting a smoothie with a bowl of soup. "Some are dipping the donut into the ice cream, or mixing in an apple fritter," Curran said. "There are some interesting opportunities."