If you flip through annual reports from Yum Brands, you'll notice an increasing frenzy starting in 1992 around "multibranding." A decade later, Yum--the holding company that owns and operates Taco Bell, KFC, Pizza Hut and, until last year, A&W and Long John Silver's--hailed the concept as "potentially the biggest sales and profit driver for the restaurant industry since the advent of the drive-thru window."
Co-branding (also known as piggyback franchising and dual or combination franchising) is, at face value, a brilliant idea: Take two franchise concepts, stick them in the same building and watch the revenue roll in. Not only does co-branding promise to save on operational costs like leasing, staff, kitchen equipment, building maintenance and advertising, it can even out customer flow, especially if one concept appeals to the breakfast and lunch crowd and the other is destined for dinner. But franchise systems have touted co-branding's biggest advantage as providing a one-stop option for groups of people with different cravings. Tommy and Sally want chicken fingers but Mom and Dad want pizza? Come on in to our pizza parlor/chicken shack, and everyone will be happy.
In 2002, co-branded outlets accounted for $2 billion in sales for Yum. But just a decade later, Yum is quietly stripping down many of its co-branded locations, and in its 2010 annual report, hidden in the black-and-white financial section many pages beyond the color photos of smiling kids and well-groomed employees, the company admits it has suspended co-branding as a long-term strategy.
The last few years have been littered with corporate co-branding marriages that bit the dust. Wendy's asked Tim Hortons to the dance, but they broke up in 2006. Dunkin' Donuts tried to make it work with Togo's sandwiches, and Arby's fooled around with everyone on the block for almost a decade before deciding to stay single.
While co-branding does have some benefits, especially in airports and other specialized locations, the "something for everyone" model has not proved its worth. Yum found that adding A&W and Long John Silver's to other concepts did not add to unit revenue--co-branding those concepts just created headaches and increased costs. Co-branding can increase operational complexity, which can lead to substandard products and poor customer service. More important, the concepts need to mesh on the most basic level, drawing from the same customer base and making intuitive sense: Franchises have found that skeptical consumers will pass up a baffling lobster-and-hot-wings merger for a single brand they understand--every time.
Many well-established brands have difficulty bending their strict operations rules to accommodate a partner, and they may run the risk of diluting their image if they sticker over their core concept with less-trusted brands. For example, Yum found that the limited menus at A&W and Long John Silver's were perceived as old-fashioned and boring, especially when paired with those at Taco Bell and KFC. Adding those smaller brands to an existing unit achieved little except to pull the focus from the more popular brand.
While the great co-branding experiment has more or less fizzled, the idea is not completely dead. Co-branding can be successful if it's done strategically between complementary brands, like salads and smoothies or pizza and another savory impulse snack. Many companies that have thought through their co-branding are finding the economies of scale the strategy produces are worth it.
"There are definitely some clear challenges in co-branding," says Steve Beagelman, president of SMB Franchise Advisors, who has worked with co-branded franchises over the last 25 years. "But if you can make it work, there are a lot of synergies and benefits, especially in making sure franchisees can make money. And that's ultimately what small business is about, especially in franchising. Let's say a franchisee has found a great location, but the costs are just too high. Co-branding gives you a real good opportunity to make that location work."
- Yum Brands