Getting burned by expansion plans

Big brands such as McDonald’s and Coca-Cola have bought alternative smaller brands in an attempt to find new customers, but can these giants market these brands properly or should they refocus? By David Benady

The biggest brands are relentless in their pursuit of new customers, but it is no easy task. McDonald’s and Coca-Cola both hit the headlines last week as their strategies for expanding into new areas were called into question.

McDonald’s refused to confirm or deny a national newspaper report that the Aroma café chain it bought two years ago had been put up for sale. Such a move, coming just months after its acquisition of a stake in sandwich and coffee shop chain Pret a Manger, would be a serious blow to the hamburger giant’s search for a wider portfolio of restaurants and alternative consumers.

Coke’s strategy in launching its Burn energy drink drew more ridicule from competitors. They claim Coke’s original marketing plan of selling Burn only through top-end bars has backfired, and the launch of a trial to sell it through the mass-market Wetherspoon and Brannigans pub chains appears to only undermine its exclusive appeal.

But Coke insists its strategy has worked. The company claims it has never promoted the brand or encouraged its sale, but bars and pubs are clamouring to stock it. It also says that legally it is not allowed to refuse to supply the product to customers, so it has no choice but to allow it to be stocked in mass-market bars.

Aroma and Burn may be sideshows to the brands’ core businesses, but according to professor of brand marketing at Cranfield University School of Management Simon Knox these represent important opportunities for the single-brand operators to seek new ways of approaching their businesses. He believes companies have to start marketing according to customers’ consumption patterns, rather than trying to thrust products at them.

Knox backs a portfolio approach where consumers are targeted in more refined groups. He believes that blazing mass-market advertising at people who will never buy the brand is a wasteful – in terms of time and money.

This appears to be an endorsement of Coke’s approach with Burn, where viral “word of mouth” marketing is used rather than mass advertising, although Knox points out that the brand is a “me-too”‘.

“The ownership of the marketing focus is around product marketing and sales. The switch to customer focus has not been fully developed in consumer goods companies,” Knox warns.

Since Burn was launched at the end of last summer, it has been listed in some 300 bars and Coke says it is expecting to have up to 800 listings by September. It has shunned ad agencies in favour of the services of public relations agency Jackie Cooper PR.

One rival says: “The original marketing plan was to go to top-end-style bars, but they have not had a lot of success. They have gone from this strategy to buying distribution in pubs such as Wetherspoon. Coke had a long history of just being able to sell Coke. In new products, the team doesn’t understand the market, and they haven’t got the patience to see new launches through.”

But a Coke spokesperson says there has been no change in strategy: “It has been a tremendous success and our goals have been exceeded. Our stance on marketing has not changed. It has been done by word of mouth the underground positioning remains the same. We are not communicating it, we have made it available and people are asking for it because they have heard of it.”

One stockist, Tony Hibberd, director of Vodka Bar Management, which runs the Babushka chain, says he was sceptical about the brand’s appeal at first as there are so many players trying to get into the market, but he was surprised to find that it quickly gained popularity. He says people may be looking for an alternative to Red Bull, which has been around for a long time. ”Burn’s packaging is good, and the way they have marketed it is good – they have done it subtly without forcing it down people’s throats.”

But he feels that putting the brand into Wetherspoon and Brannigans does not correspond with the brand’s positioning.

Hibberd says: “I don’t think it is the best move Coke can make, maybe it is now going to the mass market. I would say it would not work in Wetherspoon, which is a stack-it-high-and-sell-it-cheap environment.”

According to Coke, supplying Wetherspoon outlets is not part of a strategy – it is a requirement of law.

Coke and McDonald’s are not the only operators with powerful single brands that have sought ways to diversify. Anheuser-Busch, which markets Budweiser, had an ill-fated foray into the snacks market with Eagle Snacks in the mid-Nineties. After the business collapsed, production facilities were sold on to Pepsi-owned Frito-Lay – an example of a successful extension into a new area by a single-brand operator.

Pepsi has had more success in developing extra strings to its bow than others. As it is not the market leader, the company has been forced to seek alternatives. It acquired Frito-Lay in 1965, and turned it into one of the world’s most successful snack operations. Its Tricon Global Restaurants, including the KFC chain, multiplied and was spun off in 1997, giving distribution access to Pepsi in tens of thousands of outlets.

Coke has found success in some new areas. Fanta and Five have done well in the UK in the past year or so. But McDonald’s still needs to show it can spot an opportunity and make it work. When it bought Aroma, some said it was “McDesperate”, and the fast-food company still has to prove it is searching in the right places for new customers.

It is all very well using your muscle to distribute a brand when it has proven success. But these days, you need to identify consumers first and then discover what they want – a new reality the mass marketers who bloomed in the Fifties and Sixties are struggling to cope with.

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