Outside Insights | By Bill Cross
Suddenly everyone in the restaurant world is talking about “leveraging quick-serve brands to retail through licensing.” I don’t mean franchise licensing, which controls the look and products sold in restaurant chains. I’m talking about prepared meals and snacks branded with popular chains like Burger King, TGI Friday’s, and California Pizza Kitchen. They’re sold in supermarkets, club stores (Costco or BJ’s), c-stores (convenience stores such as 7-Eleven), and even vending machines.
In the past, restaurant chains balked at licensing anything more than t-shirts and toys, fearing franchisee insurgencies. Pitching to a national ice cream chain several years ago about licensing its brand to frozen desserts, we were shown the door by their marketing hotshot who claimed we’d ignite a revolt. Franchisees naturally worry selling their products in grocery stores will cut into profits, but statistics show same-store sales for brands who embrace retail licensing actually grow. Consumers are smart, and understand the eating-out and eat-at-home meal experiences are totally differently. That shopper standing in front of a freezer case is going to buy a meal, side, dessert, or snack whether it carries your brand, your competitor’s, or the store’s. If they buy—and enjoy—your eat-at-home version, they’re more likely to head for your restaurant on a future eating-out occasion. In brand licensing, we call it “bringing the consumer closer to your brand.”
Grocery manufacturers license restaurant brands because it’s cheaper and faster to rent the equity in a well-known name than to create a new brand from scratch. Retailers have embraced restaurant-branded foods because shoppers want to bring the restaurant experience home. Grocers know consumers are more likely to purchase a brand they already like over one they don’t know. The licensed products don’t have to be identical to menu items, but must be close enough so consumers see a natural fit.
The recent downturn in the economy has frightened some chains into rushing into brand licensing (though the percentage of in-home meals has been rising for the past four years). They hope retail versions of their menu will cement customer loyalty and translate into return visits when times improve. That kind of thinking is more wishful than strategic. Consumers have a steadily-expanding cornucopia of new meal solutions. Food licensing’s retail successes come from partnering innovative products with the “right” brand. Simply slapping a QSR logo on a ho-hum grocery item won’t fool consumers: a brand will tempt them to try a new product, but only good taste and a satisfying meal experience will induce them to buy it again.
The challenge for restaurant brands transitioning to the grocery aisle is in understanding that the process takes experience and a special skill set. Who in your firm knows what is a fair royalty rate? What’s a fair allowance for slotting fees? What are slotting fees (hint: the rent grocery stores charge manufacturers to carry their products)? Should we let them sell our products in the dollar stores (actually, one of the fastest-growing food retail channels)?
Assuming that a few phone calls, perhaps to suppliers, will translate into successful retail products is just plain wrong. Few suppliers are interested in trading that predictable role for the uncertainty of the retail marketplace where even some food giants have stumbled. That’s why most chains either contract with a licensing agency or hire someone with licensing experience.
With so many brands trying to enter the retail grocery market, we can expect a shake-out, especially with supermarkets shifting their priority to store brands. Strong brands with solid, innovative products will still be powerful tools, for the quick-serve chain as well as for the manufacturer and the retailer. The result is a win for the grocery shopper.