DC Strategy discusses multi-brand strategies
by
DC Strategy
As franchising grows in Australia so does the number of franchisors operating more than one brand.
They may be disparate brands, not related to each other except for the fact they occupy retail shopping centre space. For example, the Pets Paradise, Warner Bros. Studios (all company owned) and Billy Baxter's Coffee Shops are all controlled by the one group. Alternatively, and more commonly, multiple brands in related industries such as the Donut King and BB's Cafe brands owned by Retail Food Group, the Muffin Break and Jamaica Blue brands owned by Foodco Group, and the Drytron and Bizzi Beez brands owned by Fibrecare Group, are long established multi-branded networks.
Is this a good strategy for growth or a distraction for the management team trying to build the core brand?
There is no doubt focus is a key driver of business growth and historically almost all multi-brand groups have developed from one core brand that often will remain the major contributor to profitability for the group.
In order to determine if multiple brands is a trend, or is just considered a good idea at the time but in hindsight may be a disaster, it is worthwhile to consider why a company may think about operating another brand.
Multi-brand groups are often driven by the degree of success of the initial brand. Good management processes can result in a very successful initial brand. This has led to the development of good back office, franchising, retailing and/or operating skills management which can be leveraged without great cost to build a second brand in parallel with the initial brand.
For example, the parent company has good contacts and relationships with property owners in strip and shopping centres, and negotiating two sites costs little more than negotiating only one location. The franchise recruitment manager has the capacity to promote the new brand alongside the primary brand, sometimes even having both brands sharing the same franchise opportunity advertisement. Common training facilities may be able to be utilised and the marketing department is considered to be capable of developing the marketing collateral for a second brand just the way an external agency may work for two clients.
Economies of scale means duplication of the back office infrastructure such as reception, office accommodation, accounting and payroll, IT and MIS, franchise recruiting and executive management is not immediately necessary and the new brand can be run from the same office. Each brand then operates with a dedicated brand leader supervising his or her operations team.
This would appear sensible and an excellent means of leveraging talent and physical resources. However, like all good opportunities, risks have prevented aspiring multi-brand businesses from profiting from this theory.
Good examples of multi-brand strategies which have met with real challenges include:
- the Signature Brands group which owned the Brian Rochford, Koala Blue and Pulp brands;
- the Retail Brands Group which owns the successful Wendy's Supa Sundaes brand, but has so far failed to develop the Quiznos brand; and
- the Retail Cube group that own The Athlete's Food, King of Knives and Amazing Paints brands.
When one examines the reasons for success or failure of multi-brand strategies, it seems key success factors are that the primary brand is a proved business concept providing cash flow and profitability, the management team is strong and the chosen second brand is piloted and proven before franchising commences. Another success factor is whether there is someone in the organisation who is a dedicated and passionate champion of the new brand.
Failures often stem from uncommitted management and a poor choice of unproven and unprofitable business models.
The biggest driver of multi-branded networks will come from the limitation a population of only 20 million consumers places on the growth of a brand. As a result we will see more proven brands looking to bulk up their network size by developing or acquiring a second and in some cases third or fourth brand to leverage their talent and build real enterprise value.
See the running a franchise page for additional information.
21.08.2007
FCA Member
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