Cobranding Part 1: Will it work for fast casuals?
Cobranding in the restaurant industry may have started in the '90s with "KenTacoHut" — Pizza Hut, Taco Bell and KFC — but fast casuals are starting to embrace the idea. Bruegger's Bagels and Caribou Coffee, for example, expanded their cobranded concept last year to North Carolina, marking the third cobranded unit for the two brands, and Bruegger's recently announced a deal to pair up with Jamba Juice in South Florida. Another smoothie concept, Smoothie Factory, is now testing cobranded units with Red Mango, and Fatburger has combined with Buffalo's Café to offer chicken with its burgers in California.
While developing the right partnership and operations formula can be tricky, cobranding is a great way to add an additional revenue stream for franchisees, said Kelly Roddy, CEO of Schlotzsky's, which has been cobranding since 2007 with Carvel Ice Cream and Cinnabon. He said the key to a solid cobranding partnership is ensuring that both brands benefit. The Schlotzsky's /Cinnabon cobrand, for example, gave Cinnabon the opportunity to expand beyond malls and travel centers but also allowed Schlotzsky's to offer menu variety to guests.
"It's a great partnership for us and contributes to dayparts beyond lunchtime, including breakfast for those restaurants that open early as well as snack/evening options," Roddy said. "Cinnabon also offers an additional catering option for our guests."
Those are just a couple benefits that cobranding can provide, said Steve Beagelman, president and CEO of SMB Franchise Advisors. Cost savings and risk aversion are two others.
"When you want to keep costs down, cobranding makes a lot of sense. When you're going through the real estate process, you can save a lot of money up front since you're utilizing two business to pay the rent for one location," he said. "So, a lot of brands look at cobranding because it saves the front-end costs. The best benefit is utilizing and cross-training the labor. So you're saving on your rent, your build out, your employees. There are a lot of economic reasons why cross-branding makes sense."
Risk aversion is another benefit of cobranding, said Catherine Kearns, general manager of CHD Expert North America.
"Cobranding affords restaurants an opportunity to introduce their products to new markets, while mitigating cost and risk," she said. "A significant capital investment is required to open a restaurant, especially costs associated with making a brick and mortar location service ready, and cobranding allows for brands to test new territories, while requiring less money for initial overhead costs."
While the benefits of cobranding are numerous, there are also challenges, including the possibility of complicating operating procedures and brand dilution, especially when one brand's word-of-mouth, marketing and history are stronger than the other, said No Limit Agency's Chief Brand Strategist Nick Powills.
"You are dealing with two brands and, in many scenarios, two different customers. Even if you sell cookies and ice cream, the cookie customer may not have the same taste as the ice cream customer at that exact moment," he said.
Beagelman agreed but also said some franchisors will risk brand dilution to score faster distribution, so it's often a trade off they are willing to make.
The possibility of complicating operating procedures stems from the fact that franchises abide by corporate-mandated guidelines, so combining operations from two entities can create challenges, Kearns said. For example, if two brands come together and they both have exclusive contracts with their own paper goods supplier, someone may have to break a contract.
"In addition to contracts and sourcing of products, melding two different restaurant cultures can also be a challenge," she said. "Many chain restaurants have a pre-established operations manual and different standard to which they hold their team accountable. This includes processes for food preparation, customer service, and employee culture. Introducing two company cultures with different standards is not a seamless process. Camaraderie and synergy will take time to develop."
These reasons, Kearns said, are why it is more common for cobranding to occur among companies who share a parent company — Yum! Brands, for example. Even then, however, it's not a sure thing.
"You are mixing two brands with two different missions — even when run by the same franchisor," Powills said. "Cobranding certainly can make sense when you are not experiencing a strong ROI from every square foot of your restaurant, however, it is a tricky balancing act, no matter how you look at it — so, being an effective operator will be critical."
Should you cobrand?
Before hopping on the cobranding wagon, operators should ask themselves a few questions. They include:
- Am I comfortable with employees being cross-trained?
- Am I comfortable with potentially sharing revenue streams?
- Do I really need two concepts under the same roof?
- How will my brand benefit?
- What negative effects will it have on my brand?
- How is my brand perceived in comparison with the brand I am cobranding with?
- How will my core consumer base react to this cobranding?
- What is the cost benefit analysis on customer acquisition?
- How will marketing efforts be affected?
- How are joint decisions going to be made between the two separate corporate entities?
- How will vendor relationships be affected?
- And how will my internal employee culture be affected?
"The best time to co-brand is when it will help both perspective franchises and customers," Powills said. "Many brands have mastered the art of this concept, hoping that franchise operators will be happier with a mixed portfolio and that customers will frequent the business more with more options."
A mutual benefit is what inspired the partnership between Bruegger's and Jamba Juice, said Arturo Zindel, the developer of the five cobranded Bruegger's and Jamba Juice units in South Florida.
"We believe there are synergies with the brands plus additional operational efficiencies and economies of scale when you build stores that offer the two brands together," he said. "Additionally, in the case of Bruegger's Bagels and Jamba Juice, the dayparts are different plus both brands stand for high quality products and a top end customer experience in the stores, so we believe they will be a great fit offered under one roof."
The same can be said for Schlotzsky's, which has been so happy with its partnerships with Carvel and Cinnabon, that it's launching a five-restaurant test with TCBY this April in the Austin area. Through the express format, the chains will offer six yogurt flavors and more than 15 types of toppings, Roddy said.
"We are excited about this opportunity and the potential daypart expansion," he said.
Editor's note: This is part 1 in a two-part series about cobranding. The next installment will feature Q and A interviews with three restaurant operators who have found success in cobranding.
Cover photo: Courtesy of Schlotzsky's Facebook page.
Cherryh Cansler / Before joining Networld Media Group as director of Editorial, where she oversees Networld Media Group's nine B2B publications, Cherryh Cansler served as Content Specialist at Barkley ad agency in Kansas City. Throughout her 17-year career as a journalist, she's written about a variety of topics, ranging from the restaurant industry and technology to health and fitness. Her byline has appeared in a number of newspapers, magazines and websites, including Forbes, The Kansas City Star and American Fitness magazine. She also serves as the managing editor for FastCasual.com.