What Role Will Dual Branding Play In The Future Of The QSR?

As Private Equity Firms and Franchisor initiated strategic platforms continue to embed themselves in the world of franchising, many bring new ways of promoting their brands and positioning them for success. Their never-ending quest to increase sales and profits by capturing more “share of stomach” and optimize shared infrastructure is now a familiar strategy in the QSR segment. As a Dunkin’ franchise, I became aware of this tactic when Dunkin’ (then Dunkin Donuts) began co-branding their locations with Baskin Robbins Ice Cream. Back in the late 1980’s Dunkin Donuts sold essentially two items, hot coffee and doughnuts. Given the seasonality of both brands, it made sense to pair the softer summer sales of hot coffee and doughnuts with the uptick in ice cream sales during the warmer months in the Northeast.

Today the methodology of co-branding or dual branding has grown to encompass not only the simple idea of adjusting for seasonality or utilizing shared rent but also to heighten and elevate the guest experience by presenting brands that, when combined, create an entirely new “occasion to use” a QSR.

One of the leaders in the dual branding space is Focus Brands. Focus Brands is an affiliate of the private equity firm Roark Capital Group and the parent company of Auntie Anne’s®, Carvel®, Cinnabon®, Jamba®, Moe’s Southwest Grill®, McAlister’s Deli®, Schlotzsky’s®, and Seattle’s Best Coffee® (in certain military bases and in certain international markets). In addition, Focus Brands has established itself as an innovator in combining brands that complement each other in shared spaces.

I had the pleasure of interviewing Jim Holthouser, Chief Executive Officer for Focus Brands. We covered the topic of Dual Branding and how it will impact the QSR segment.

Gary Occhiogrosso: What role do you see Co-Branding playing in the future of franchise QSR?

Jim Holthouser: Co-branding is an important part of the future for Focus Brands’ portfolio of brands, as it allows our brands to serve customers in more location types and creates new investment opportunities for franchisees. While opportunities still exist for brands like Auntie Anne’s and Cinnabon in malls, streetside locations represent perhaps an even bigger growth opportunity. When we take a brand like Auntie Anne’s and pair it up with another complementary brand in our portfolio, it unlocks the ability to meet guests in more formats, such as streetside locations.

Occhiogrosso: How is Focus Brands strategically leaning into the dual-brand opportunity for growth?

Holthouser: As a result of our investment in consumer research to validate the opportunity to grow the right combinations of co-brands, Focus Brands has identified four co-brand concepts that offer thoughtful brand pairings for consumers and appealing business opportunities for brand franchisees:

• Auntie Anne’s/Cinnabon
• Auntie Anne’s/Cinnabon/Carvel
• Auntie Anne’s/Jamba
• Cinnabon/Carvel

We remain focused on these four combinations as we continue growing our co-brand footprint. Currently, Focus Brands boasts more than 1,100 branded units that are co-located or co-branded with another brand in the portfolio, with even more in various stages of development.

More than ever, we are harmonizing the way that we do things across our brands to make it easier for franchisees to operate two brands in this format. Not only does co-branding present an attractive business opportunity, but with the Focus Brands portfolio, brand franchisees gain access to key benefits as a result of the power of our portfolio. This includes efficiency, shared resources, menu diversity, and more.

Occhiogrosso: Where does one start when determining the right combination of dual brand concepts?

Holthouser: Our brands easily thrive on their own as standalone restaurants, bakeries, shops, stores, and ice cream shops or in non-traditional venues, but detailed research showed us that our consumers want more ways to access their favorite brands.

Our strategy team conducted immense research, taking an in-depth look at co-brand/multi-brand opportunities, including financial models, operations, development, marketing, and competitor analysis, to validate the opportunity to grow the right combination of dual brands. Additionally, we have invested heavily in consumer research to identify how to create combinations that resonate with consumers and meet them where they want to be met.

What we found was that each of our brands is considered unique and distinctive. What consumers like in our co-brand locations is that they have more choices and variety. Depending on what consumers are craving at the moment, they have more choices and options in these locations for themselves or those they are visiting with.

For example, Jamba + Auntie Anne’s complement each other. Consumers like the idea that they can get a crave-able smoothie or bowl one day from Jamba and on another occasion, or the same occasion, an Auntie Anne’s pretzel. When there are multiple people visiting together, there’s a broader array of choices to satisfy everyone in the party. Mom may want a smoothie, and her children may want pretzel nuggets.

Occhiogrosso: What goes into making a dual-brand concept successful?

Holthouser: From a high level, co-branding usually works best with brands that are already established and have good brand awareness.

For co-brand concepts to be successful, there needs to be seamless integration of technology (including digital experience, loyalty programs, POS, etc.) as well as the physical space and the overall guest experience.

From our experience, the back-of-the-house layout needs to be done in a thoughtful way to ensure maximum efficiency and overall speed of service.

At Focus Brands, we have a team dedicated to co-brand growth. They work on bringing the brands together in one space, creating integration, maximizing back-of-house operations, consumer messaging, prototype optimization, team training, drive-thru technology, and many other things. Our goal is to optimize the model so that it drives unit volume and profitability for our franchisees.

For us, dual branding works in a wide range of venues – malls, streetside locations, and non-traditional locations like airports. With that, there are a variety of formats and sizes available for co-branded units depending on the venue and brand combination. The back of house is shared, so our dual brand locations share many common items – sinks, shelving, office, refrigeration, freezer space, etc. Dual branding allows for the total space to be more like 1.5X the size of the space for back of house and front of house instead of 2X the size if it were two separate brand spaces.

Occhiogrosso: Separate or integrated? Are there opportunities to harmonize across brands? How are those decisions made?

Holthouser: There’s no question that there are opportunities to harmonize across brands when it comes to co-branding. We are uniquely positioned to take advantage of these opportunities, as we have brands that lend themselves beautifully to co-branding within the same portfolio of brands.

At Focus Brands, our brands are managed as unique brands but operate within the same category structure, which allows us to manage across brands more efficiently and effectively. More than ever, we are harmonizing the way that we manage and develop our brands.

Occhiogrosso: What challenges or disadvantages do dual brand operations face? How do you navigate?

Holthouser: We’ve seen other brands in the industry pursue co-branding with mixed results – some continue, and others have moved away from co-branding for various reasons. By managing our brands in a category structure, we have been able to easily integrate cross-brand management, something we see competitors struggle with.

One challenge can be found in finding the right layout for the stores. The back-of-the-house layout needs to be done in a thoughtful way to ensure maximum efficiency and overall speed of service. To solve this, we evaluated layouts, equipment, and franchisee input and improved back-of-house layouts for operational efficiency and better flow. Additionally, for locations with drive-thrus, we’ve developed standard drive-thru staging areas for quicker service and order accuracy.

Ultimately, we are confident in our ability to overcome any future challenges posed by co-brand concepts due to our scalable prototypes and ability to quickly optimize based on learnings.

Occhiogrosso: Given the state of the current economy, do you see dual branding as solution to addressing challenges such as labor, supply chain, and real estate?

Holthouser: While it’s hard to say whether co-branding is a solution, co-branded units do provide unique benefits in terms of efficiency and shared resources like labor and real estate.

The way I see it, there are three distinct advantages to co-branding. The first is stronger top-lines for our franchisees – we’ve seen positive results for many of our co-brand franchisees in average unit volume and unit-level economics. Multiple brands in one space equates to more products that appeal to a wider range of consumers. The second advantage is in real estate. Franchisees can have the ability to secure a more premium piece of real estate when building a co- or multi-brand location (drive-thru endcap, standalone parcel in high traffic area) because it has potential to generate more in sales. Finally, from an operational standpoint, no additional labor is needed. One store manager can run the location, and employees are cross-trained to execute both brands.

As more co-brands open, we continue to analyze P&Ls and buildout costs to understand economics and gain valuable insights for us to optimize formats and maximize efficiencies no matter the economic headwinds.

Occhiogrosso: Are any big dual brand milestones on the horizon for Focus Brands?

Holthouser: We believe this is going to be a big year for co-branding at Focus Brands. All of the current dual and co-brand combinations in our portfolio have a great opportunity to grow in core venues and territories, as well as new markets.

For 2023, we expect to open more co-brand locations, most of which are Auntie Anne’s + Jamba locations or Auntie Anne’s + Cinnabon locations.

We’re also looking forward to the opening of the first Cinnabon Swirl featuring Carvel Soft Serve.

Conclusion

As more QSR brands struggle to keep pace with the rising cost of goods, labor, rent, and just about everything else, the public will see more and more co-branding. In my opinion, it’s a win-win for the operator and the consumer, more “bang for the buck” all around.