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.”

The benefits

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.”

The challenges

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.

Source: Fast Casual

Schlotzsky’s comeback story: The days of bankruptcy are long gone

Fast Casual

 

February 4, 2013 - Cherryh Butler

Everybody loves a good comeback story, and if Hollywood were to feature one about a restaurant as opposed to an underdog sports team, Schlotzsky’s would be the star. After all, what’s more inspiring than a brand reclaiming a top spot in the industry less than a decade after filing bankruptcy? That story belongs to Schlotzsky’s President Kelly Roddy, the man who took over in 2007, and helped the nearly extinct chain to accomplish seven years in a row of positive comps. It’s also enjoying a huge growth spurt, opening 30 units in the past two years with plans to open at least 50 more this year.

“All round, Lotz better”

While most brands struggling to regain relevancy tend to overhaul their entire menu, Schlotzsky’s left it alone for the most part except for changing the salads — they’re fresh now — and a few other menu additions. Instead of changing the food, Roddy decided to concentrate on updating the look and feel of the brand. What sets Schlotzsky’s apart from competitors, he said, is serving sandwiches on made-from-scratch, round buns, as opposed to the subs served in most restaurants. Those round buns inspired the chain’s design element and new tagline, “All round, Lotz better.” (Click here to see photos of the new design.)

“It’s our brand filter, our promise to do everything better,” Roddy said.

The first unit to get the redesign was in Waco, Texas, in 2009, because if it worked there, “We knew it would work anywhere. Circles are just a cool design and you see them everywhere from on the walls to the lamp shades to our cups and bags,” Roddy said. “When you see a circle, we want you to think Schlotzsky’s.”

The design also incorporated fresh, modern colors, including apple green, sky blue and bright red mixed with some earth tones.

“It’s just a cool, hip look,” he said.

When sales increased at the Waco unit by 45 percent, Roddy and his team knew they were onto something and began building all the new units with the new look. They still had 350 “old” stores, however, that needed updated. They went to work planning how to use their marketing dollars to retrofit the other stores. It took a few years, but now nearly every unit has new paint inside and out, new signage, packaging and road signs.

Better service

Although customers still order at the counter, Schlotzsky’s staff bring their food to their tables. In the past, guests waited for their numbers to be called and had to fetch their orders.

“It’s now more of a sit down and relax atmosphere, and we’ve removed the clutter with the numbers,” Roddy said. “We also added more soft seating instead of mainly just hard chairs. There’s more booths and nice lighting. It feels more like a casual dining experience.”

The food comes on china as opposed to paper products, which also upgrades the experience.

Branding together

The chain also found another way to increase sales; it added a Cinnabon Express to about 200 of its locations, and 30 units now house Carvel Ice Cream units.

“When we add these brands, we are more of a complete package,” Roddy said. “We may be selling ice cream to one out of 10 customers during the day, but it’s more about creating family events at night. It helps bring in more families. We’ve seen a nice little bump in the Carvel stores at dinner.”

Cinnabon, which sees half its sales as take out, also encourages guests to spend more money.

“They’ll stop in for lunch and then grab Cinnabon to go,” Roddy said. “It’s a very inexpensive way to put in another national brand and bring in customers.”

Looking ahead

Schlotzsky’s is in full growth mode, said Roddy, who predicts the spurt won’t stall anytime soon. The chain, which has a presence throughout the States, has sold more agreements in Texas and Oklahoma and has also targeted Phoenix and California. Franchises will also soon open in Philadelphia, North and South Carolina, New Jersey, Kentucky, Tennessee and Florida. An announcement about an international deal is also just weeks away, Roddy said.

“We’re not only financially strong; we are growing and will be for years to come,” he said. “It’s just been a great ride.”

Source: Fast Casual

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