Originally created 05/06/02

New restaurant flavor: co-branding

Nine years ago, restaurateur Jody Luihn took a risk.

Business at his KFC in Clayton, N.C., was off. So he combined the eatery with a Taco Bell, a concept almost unheard of at the time.

Sales almost instantly doubled, and Luihn, president of Raleigh-based Luihn Foods, shared the news with Tricon Global Restaurants, owner of the two chains.

Today, co-branding, which puts multiple restaurants under one roof, is one of the hottest trends in the fast-food business.

"I can't think of a franchise today that isn't looking at co-branding," said Don DeBolt, president of the International Franchise Association in New York.

City planners are fans because it encourages compact development. Companies, meanwhile, report increased profits, while franchises benefit because they're appealing to more customers and maximizing space.

Co-branding ultimately saves money because it requires less land and fewer buildings, a plus in commercial areas where costs for prime space suitable for a restaurant are going through the roof.

"Land prices are outrageous and (they) don't seem to be coming down," Luihn said. "We need the extra sales to be able to pay for the property. We can't jump our prices just because land is so high."

That's the main reason several companies say more two-in-one and even three-in-one stores will open in the next few years as the economy picks up.

Louisville, Ky.-based Tricon also owns Pizza Hut. It recently paid $320 million for Long John Silver's, a seafood chain, and A&W Root Beer.

Typically, adding a second brand can increase a restaurant's sales by as much as 40 percent. As a result, Tricon is making co-branding a "cornerstone of its new growth," said spokeswoman Michelle Mandro. And so are Dunkin' Donuts, Baskin-Robbins and Togo's Great Sandwiches, brands owned by Allied Dome.

Although combining brands requires more annual franchise fees and a bigger investment in kitchen equipment, there are other benefits.

But put simply, more choices appeal to more customers, increasing the chance that bigger groups will visit the site - resulting in a higher tab.

Co-branding also makes the most of open business hours.

For example, peak sales at Dunkin' Donuts are in the morning, while Baskin-Robbins does better in the afternoon and evening. And Togo's likely would bolster afternoon business.

"What do you do with a Dunkin' Donuts in the afternoon? You dust it," said franchising consultant Michael Seid, co-author of "Franchising for Dummies."

Developers and bankers also find co-branding attractive because it lessens their risk.

If one company has problems or an area's demographics change, chances are the site's co-habitants can help pay the bills.

But restaurant analysts are hesitant to tout the idea, in part because it does come with risks.

"The problem with calling it the wave of the future is people call it a home run," Seid said. "You have to have some thought, other than 'I have two products. I can stick them together.' "

Instead, owners need to realize it's a balancing act and that they need to find restaurants that complement each other. Otherwise, one brand might flourish in a location, while another fails.

Logistics also are important, franchise owners say. The parking lot has to be large enough for traffic from both businesses and owners must ensure the brands don't have the same rush hours. That could strain employees and resources, Seid warned.

There's also a chance of one reputation tarnishing another. If a customer has a bad experience at one company, the chances that he or she visits again are slim, even if it is paired with another name.

Finally, companies should not stuff too many brands under one roof. Two or three seem to work, but four or five could be a stretch.

Or, as Mike Williams, with Karnes Research, says: "Sounds like a recipe for indigestion."


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