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Partnering for success

Firms finding that co-branding makes economic sense

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Do you ever swig an A&W root beer with your KFC popcorn chicken? Or sip a Starbucks Frappucino while strolling the isles of Albertson's or Super Target?

If so, you are the spark that has made the "co-branding" marketing technique light a fire under the world of retail.

Also known as "multi-branding" or "brand bundling," the idea is to tie two or more product name brands together, maximizing the use of pricey retail space and advertising.

"It's a way to really bring a business to another level," said Sidney Feltenstein, chairman and chief executive officer of Yorkshire Global Restaurants, owners of A&W and Long John Silvers restaurants.

The restaurant group, based in Lexington, Ky., began using the concept in 1997 and first tested it in Utah in 1998 in a partnership with the local KFC licensees, he said.

"To be able to add a brand really represents a powerful both brand and menu alternative to customers in Salt Lake City or anywhere," Feltenstein said. "You do a lot of incremental sales, and you really don't have any overhead costs. So economically it's really a good deal."

Likewise, Ogden-based restaurateur Gil Craig hopes customers no longer hunger for a Taco Maker beef enchilada without also craving the tropical flavor of a Mayan Jamma Juice Cocolada or a Jake's Over the Top Avalanche shake. Or that if a customer is not hungry for one, her dining companions definitely will be for one of the others.

Since opening his first Taco Maker in 1978, Craig enjoyed respectable success creating a national market for his Mexican fast food but was frustrated by high real estate costs. Business has spiked dramatically since he saw a Subway sandwich shop in a convenience store in Washington state about six years ago and decided to try the concept himself, he said.

"It's been harvest time" due to co-branding, he said. "Every year's been profitable and positive growth as a corporation. We've enjoyed substantial increases."

The Taco Maker Inc. opened its 133rd location last week — a West Jordan restaurant with Taco Maker on one side and 1950s-style hamburger joint Jake's Over the Top on the other. Some of Craig's locations also combine both restaurants with his Mayan Jamma Juice, and he now aggressively urges franchisees to do the same.

The Taco Maker has partnered with several outside companies throughout the United States and recently signed a contract with Blimpie's sandwich shops to install Taco Maker express stations throughout New York City — on high-priced real estate the corporation never could have afforded otherwise.

"We couldn't begin to justify the location — it's out of our league. This is one of the best opportunities we've seen," Craig said of the Blimpie's deal.

Any hungry driver cruising the Wasatch Front has likely noticed KFC fried chicken signs shoulder-to-shoulder with those of Taco Bell or A&W root beer. Tricon Global Restaurants Inc., parent to KFC, Taco Bell and Pizza Hut, considers itself "the world's multi-brand leader" with an average of $1 billion in annual sales revenue, according to spokeswoman Michelle Mandro.

"It's phenomenal," she said. "The families love it because the children might want Taco Bell and the parents want KFC. Co-workers like it when they go out for lunch."

KFC tested the concept in 1994, but it was not until 1997 that Tricon began aggressively pushing the two-or-more restaurant format, Mandro said. Now in a partnership with Feltenstein's Yorkshire group, roughly 1,500 of Tricon's 5,384 U.S. locations offer two or more restaurants, she said. Tricon plans to open another 350 such restaurants in 2002.

"It is a very successful concept for us," she said. "It's providing the consumer with a variety of choices under one roof."

Such partnerships allow a business to increase its revenue by a possible 30 percent to 40 percent as opposed to the 2 to 3 percent annual norm, Feltenstein said.

"Generally it's very difficult just through business as usual to generate a high enough level of sales increase to impact the bottom line," he said. "Most of our new-store growth one way or the other will be in co-branding operations because the economics are just so compelling."

While co-branding is most visible now in fast-food chains, the concept is generally credited to Betty Crocker's 1961 use of Sunkist citrus in its Lemon Chiffon cake mix. Other well-known examples include the Eddie Bauer edition of Ford Motor Co.'s Explorer, myriad candy brand names mixed into flavored ice creams and more branded credit card offers than can be easily tallied.

"The only end in co-branding is where the imagination ends. It's one of the new frontiers in marketing," said Brigham Young University marketing professor Gary Rhoads.

The technique can save a company hundreds of thousands of dollars in advertising, product introduction and name recognition, he said.

"It's like any tool, it can be overused and abused. However, if done correctly it can be a real advantage," he said. "I think you're going to see co-branding as a continued way to reduce costs."

But the risks are just as real, Rhoads said. If one brand name is sullied it can take the other down with it.

That threat is significant, especially in the food industry. Companies using co-branding said partners must be chosen carefully, with an eye to internal standards as well as product compatibility.

The risk is one always present in food preparation, internally as well as from partners, Tricon's Mandro said.

"That's a gamble that you take. But we haven't had any problems," she said. "It's something that the food industry as a whole has to deal with. We haven't had any problems, don't anticipate any problems and don't think it will affect the popularity of our brands."

Partners also must be careful to ensure they will be treated as equals, Craig and Feltenstein said. The Taco Maker now has stringent guidelines for placing its restaurants in a convenience store setting, demanding signs equal in size to the host company and good product placement, Craig said.

"When's the last time you decided to go into the convenience store for dinner?" he asked. "You need to be sure you have a total self-identity when you co-brand."

But when it works, companies say the potential payoffs are well worth the effort.

"A good convenience store will have 1,200 to 1,500 customers a day, and all we need is 15 percent of that," Craig said. "We're doing fine because we're not paying the overhead on that."

While quick to point out "we're not fast food," Starbucks Coffee Co. has used the same methods to elevate its product from in-state obscurity when it opened its first coffee house here in 1996 to an everyday experience for many Utahns.

"The philosophy behind it is we want to make sure that the Starbucks brand and the Starbucks experience is available where our customers expect to find it," said Bridget Barrett, Starbucks Rocky Mountain regional marketing manager. "There's nothing different in the methods of preparation and the commitment anywhere you go."

In addition to its line of grocery products distributed by Kraft and the 10 traditional stand-alone coffee shops Starbucks has built here over the past six years, devotees can purchase the same products at three locations at the Salt Lake City International Airport, five Albertson's grocery stores and two SuperTargets. That is in addition to several mini-cafes in Nordstrom, Barnes & Noble Booksellers and hotel sites, including the Sheraton and Hotel Monaco, along the Wasatch Front and Park City.

Not bad penetration for a market that has a significant number of non-coffee drinkers.

The kiosk versions of Starbucks, like all its retail locations, are corporate-owned and mirror the full-sized stores exactly in atmosphere, decor and product preparation. In addition to the higher exposure and customer convenience these stores within stores provide, Barrett said, "a customer might be introduced to us in the grocery store, and they might not have thought about coming into a (freestanding) store."

"These are not partnerships that are entered into lightly," she said. "It's all in the company you keep and making sure that we are associated with brands that are as committed as we are."

E-mail: moneill@desnews.com