Co-branding Synergizes Franchise Sales
Printed in USA Today
by Nancy Rathbun Scott
Gasoline marketers are famous for it. Credit card companies like to do it with airlines, car rental companies, even video stores. AOL may have done it best-certainly they've done it in the most creative places: inside cereal boxes, through automatic teller machines, at sporting events and gyms, packaged with musical CDs-even on ice, with Omaha Steaks!
Marrying one brand to another for marketing purposes is one of the hottest marketing gimmicks of the 90s, so it's not surprising that franchise companies have taken two-tone marketing to the ultimate level through a system known as dual- or co-branding.
In franchising, the concept of co-branding simply involves two or more "brands" sharing real estate. Each maintains identity, but there is free flow of customers between them. Co-branding saves operating costs and lures more customers to the site. Particularly in the food industry, it's a growing phenomenon.
Common grounds sell coffee and food
"There is certainly value to it," says Bruce Major, vice president of franchsing for Sandella's, a fresh-food restaurant. Major says specialty retailers often look for co-branding partners, because they realize very quickly that they need diverse products to attract customers throughout a 24-hour period. Sandella's, which began as a coffee concept, soon developed a line of food products-wraps and soups. Now Sandella's shares space with Starbucks in four locations in New York City, where expensive real estate makes co-branding sensible. "In those locations, two completely separate entities share common seating and customers pass through the same door,"
Those considering co-branding must be selective, says Major. "It has to make sense for both partners, so you have to look very closely at the business aspects of the deal and at the synergy that the two entities can bring." Major also points out that a landlord will respond more favorably to the greater rent that can be offered when two groups are occupying the same space.
But, it's not just associating with at recognizable brand name that makes co-branding viable, says Majors, who has 406 Sandella's stores in development. "Co-branding has to be smart business. Any franchisor who is putting franchissees into co-branding just to acquire sites is doing a disservice to the system and their franchisees. We're very seriously looking at co-branding with some product lines, but we're being very selective about it to protect the integrity of the chain and the franchise investments that are coming into the chain."
Joint development fuels tasty twist in franchise sales
Much of the co-branding explosion has been fueled by joint development agreements between quick-service restaurant franchises and gasoline retailers. A good example is the deal struck between Charley's Steakery, TCBY Treats, and the Shell Food Mart in Columbus, Ohio. The concept, which signed up all three players before it was built, has the three brands thriving under one roof. Floor space is designed to accomodate free flow of traffic from one area to another. Outdoor signage touts each individual identity, but once inside, customers move easily from one area to another. "It's almost like a mini-strip center where you have full-sized concepts," says Rich Page, director of national development for Charley's Steakery.
Gilligan Oil is the franchisee for all three entities. "The advantage is that the franchise owner doesn't care where people are buying within the mini-mart," Page says. "Operationally, he keeps the brands separate, but he can save on labor with crossover between Charley's and TCBY personnel, who can work both counters and cash registers at the same time."
While the venture cost Gilligan greater up-front capital, ultimately, the synergy increases the bottom line. The food concepts pull from the traffic flow to Shell's gasoline pumps, TCBY increases customer draw for gasoline during the afternoons and evenings, and Charley's Steakery increases lunch and dinner traffic to the location. The arrangement also attracts more female customers than a free-standing Shell Food Mart does. In all, the synergy adds somewhere around an additional 10 percent to each concept's sales. Still, while each location drives the others, each also stands on its own economically and that's important, says Page.
Multi-development nudges franchise profits up with cost-savings
If one franchisee can benefit from hob-nobbing with another, maybe one franchisee can hobnob with itself. At least that's the idea behind Frulatti Cafe's multi-development approach. "We have several franchise owners who own two or three different, competing franchises in the same mall," says Fred Addington, Frulatti's director of franchising. "The competitors are going to be there anyway, so the economics work better for our owner if he has a manager watching two or three concepts in the same food court."
Doubling or tripling up certainly cuts down on management costs, but, Addington says development costs also can be slashed. "You can save on the typically-costly equipment package in a mall operation. For example, you can save $15,000 by doubling up on a walk-in freezer, walk-in cooler, and a triple sink."
Frulatti recently sold one of its stores in Naples, Florida, to a man who owns a different franchise, right next to it, "He can knock a hole in the wall and pass back and forth. It works out well for him and his son, who manages the franchise next door. They don't have to get in the car and drive across town to see how the other store's doing."
Co-branding opens new markets
The marriage between franchises with familiar old names and newer franchise enterprises opens up new markets for both partners. When Churchs Chicken teamed up with the widely recognized White Castle System, Inc. in 1995, Churchs experienced rapid growth. Churchs' pursuit of alternative venues like convenience stores and grocery stores accounted for eighty percent of its growth in 1996 and 1997. Churchs co-branding agreement with White Castle enhanced the chicken chain's marketing efforts to build Churchs brand awareness with customers and communities in markets with little or no Churchs presence. The partnership worked to expand day-parts for both brands, with new food offerings attractive to both regular and new customers. This bold co-branding move elevated Churchs to a leadership position in developing alternative venues, giving Churchs a reputation attractive to potential franchise buyers.
Co-branding spurs the market growth of franchisors ranging from Jiffy Lube International, Inc. which has teamed up with Sears Auto Centers, to The Packaging Store which is wrapped up with Ryder Truck Rental, offering truck rental customers one-stop moving services. Franchises with more seasonal food offerings like Tastee-Freez expand their markets by combining with other food concepts in a variety of locations like food courts, grocery and convenience stores, and hospital and hotel lobbies.
However you look at it, co-branding stems from creative business thinking and planning. It's not a match until hard thinking and planning makes it so. But a match well-made can open up markets, cost-savings, and franchise system growth for all the parties involved.
The Plusses and Minus of Co-branding
Franchise experts advise prospective franchise owners who may enter into co-branding arrangements to weigh carefully factors such as the following:
1. Co-branding can increase traffic throughout the day. In New York City, Sandella's has teamed with Starbucks to increase day-parts for both companies. Starbucks attracts the morning coffee drinkers, as well as the mid-morning, afternoon, and evening snackers. Sandella's sandwiches and soups attract the lunch and dinner crowd. In tandem, the synergy works to increase day parts and customer flow for both partners.
2. Partners may ask for non-competition. In some co-branding situtations, one partner may require that certain products not be sold. In the case of a mini-mart alongside a fast-food restaurant, for example, the mini-mart owner who has been making good income from beverage sales may object to competition from a restaurant. That's why Sandella's, which began as a coffee concept, downplays its own coffee sales in locations partnered with Starbucks.
4. Co-branding can widen customer demographics. The dynamics of customer demographics should figure in co-branding deals. For example, when a Shell Oil franchisee teamed with Charley's Steakery and TCBY Treats, the gasoline retailer found that the percentage of female shoppers to his own Shell Food Mart also increased.
5. Shared labor and management lowers cost, but brings challenges. Co-branding partners often can enjoy the benefits of shared lease, management, and equipment expenses. On other hand, poor management on one side of the aisle can tarnish the image of both operations.
6. Shared identity can pull customers, but also dilute market presence. Keeping one franchise's identity separate from another's demands clear signage and distinctive design. Assignment of signage space and placement need to be specified in any co-branding agreement. In the case of the three-way deal between Shell Food Mart, Charley's Steakery, and TCBY Treats, for instance, Rich Page, director of national development for Charley's Steakery, says "Everybody has signs out front but we're using a distinctive awning that sets us apart. We plan to use it everywhere."

® copyright 1999 Nancy Rathbun Scott
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