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    Chain Leaders Use Retail Licensing to Grow Revenues, Brand Engagement

    Photo: Cara Becker, Focus Brands

    Chain Leaders Use Retail Licensing to Grow Revenues, Brand Engagement

    Retail licensing and consumer packaging of restaurant label brands continue to comprise an explosive revenue category for restaurants. Consumer Packaged Goods (CPG) licensing revenue for Starbucks will exceed one billion dollars this year¹ and represents nearly nine percent of total revenues.

    Sales in retail channels derived from T.G.I. Fridays® and Marie Callender's retail brands are approaching half a billion dollars each.² Beyond revenue generation, retail licensing of restaurant brands presents an opportunity to engage consumers with the brand. 

    Cinnabon, part of the Focus Brands portfolio of restaurants, has been expanding its CPG footprint for nearly a decade now. It started the program in 2002 with Cinnabon Bread through its Sun-Maid licensing agreement.

    The licensing deal with Pillsbury® began with the Grands! product line.  It launched in 2006. In 2009, Kellogg's became a retail partner with Cinnabon, co-branding and producing the Cinnabon Bar.  "Cinnabon went the ‘ingredient license’ route, which took them into a multitude of products that they may not have been able to enter by themselves," says Janna Markle, vice president of Licensing for The Valen Group. 

    "They have built some great brand awareness with big packaged goods players." The Valen Group, based in Cincinnati, is a growth and innovation firm with integrated services in strategy and innovation consulting, market research and strategic brand licensing, with a focus on global 1000 and emerging consumer products and foodservice companies. 

    "You need to make sure that your licensed products reflect what your consumers expect from the brand," says Cara Becker, vice president, Consumer Products Licensing, for Focus Brands. One of her successfully-licensed products is Cinnabon Candy Canes, offered only seasonally. The candy canes offer yet another opportunity for Cinnabon to increase brand awareness at a time of year when the Cinnabon brand is more front-and-center with consumers, particularly at the shopping malls, and allows existing consumers to further engage with the brand.

    After developing a core program with retail brand partners, Becker and the CPG team worked on line extensions to make sure Cinnabon would continue to develop products that optimized its leadership position in cinnamon within each category that presented opportunities. Becker says that most of Cinnabon's licensed products now use the premium Makara Cinnamon that differentiates its in-store products.

    Within the last year, through the growth of these strong partnerships, Cinnabon has expanded to Kellogg's cold cereals and all Pillsbury cinnamon-flavored rolls.

    "I want to have the best cinnamon product in any category where cinnamon is a fit." Cara Becker, Cinnabon -Focus Brands.

    Dunkin' Brands recently expanded its at-home coffee line, entering the Keurig single-cup (K-Cup) platform. K-Cups are marketed prominently in point-of-purchase (POP) material hanging on entrances, and displayed near its base coffee bean offering and registers. For Dunkin', other revenues (mostly from CPG) amount to nearly $10 million quarterly.

    Starbucks said earlier this year that K-Cups represent a billion-dollar revenue opportunity for the premium coffee chain globally. It is currently only a fraction of the annual billion-dollar consumer products category revenue stream.

    Green Coffee Mountain Roasters, the company responsible for the K-Cup platform, is doubling its sales this fiscal year to over $2.7 billion dollars, mostly on the strength of K-Cups.

    Cannibalization? Or Opportunity Knocks More than Twice.

    The Valen Group's Markle says that research shows cannibalization is not a factor in expanding restaurant brands to retail. Sales are "accretive to the restaurant" by adding value over time. She says the meal occasion is differentiated from that of the restaurant, and this is what is being captured. However, she points out that "products must meet consumer expectations in order to be successful, drive repeat purchases, and grow into a long-term business."

    The cannibalization concern is also echoed by franchisees when a brand enters the retail space. It's important to have strong communication and messaging in place with restaurant franchise partners. "You just have to consider their perspective and communicate to them in a way that honors their perspective," says Becker. 

    Focus Brands has successfully launched a Moe's Southwest Grill retail line of products—15 in all—at BJ's Wholesale Club. The company is also working to expand the still-nascent retail licensing program for the Schlotzky's brand. For Cinnabon, Becker continues to work on one critical goal: "I want to have the best cinnamon product in any category where cinnamon is a fit," she says.

    Cinnabon Retail

    Retail licensing has many winners rising to the occasion. Because typical retail products are non-competitive with a restaurant's core away-from-home offering, the ability for established restaurants brands to secure additional revenue and royalty streams is highly appealing to chain leaders. IHOP, with a retail strategy developed in conjunction with The Valen Group, successfully entered the frozen breakfast category. Its products have appealed to consumers in that space. 

    P.F. Chang's foray into frozen entrees for consumers appears to have strong legs for an extended presence in retail and grocery channels. "Bringing their high quality to the table at home meets the needs of many consumers who don’t have access to the restaurant," says Markle.

    Focus Brand's Becker says Cinnabon has some big plans for the breakfast, snack and dessert categories. The brand expects its next big release to "tap into a major white space" on shelves in the breakfast category. International markets also present significant opportunities; however, Becker says that this is orchestrated and directed by the licensing partners' expertise and presence in certain markets.

    Cinnabon's Pillsbury co-branded products are popular in Canada, and leverage that licensing relationship. In Mexico and Canada, Kellogg's retail positioning allows the brand to be successful. Becker notes that some markets can present challenges if the business model of licensing is not well established. In some Middle Eastern and Latin American retail segments, manufacturers may not have the experience in licensing products, nor the comfort level in paying royalties to brands—however popular they may be.

    "[Retail licensing] is a great business model and not without its challenges," says Becker. "But it's a fantastic way to grow the brand."

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    See our follow-up article next week on retail licensing next week, or become an QSL.Insider to receive our weekly e-newsletter.

    See also Restaurants Must Take a Strategic Approach to Licensing.

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    ¹Extrapolated from 2011 Starbucks financial reporting as of Q3

    ²Data from The Valen Group

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    (09-12-11)

    Photo: courtesy of Rogers Ruder Fin for Focus Brands

    Author: Rick Zambrano

    Copyright: Kandessa Media. All rights reserved.

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    This story appears in:  Franchise & Licensing