Brands who entrust their precious business to others

Are you giving away the baby? Companies are handing over their most precious asset, their brand, by entrusting external managers with specialist knowlege of those sectors to take control of their commercial diversifications. Will it pay off?

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The idea of putting your brand in someone else’s hands may seem scary for marketers, but allowing another business to manage your operations can help companies test out new markets, products or expose valuable new insights. Indeed, companies spent a total of £16.1bn on research and development in 2010 – up 3.7% on 2009, according to figures released by the Office for National Statistics (ONS) last month.

The average consumer may not have heard of SSP, Euro Garages or McBride, but these businesses are responsible for running or making parts of the biggest brands in the UK, including Marks & Spencer Simply Food, Starbucks and most of the big supermarkets’ own-label laundry and cleaning products.

In the past few weeks, Starbucks has announced plans for 200 drive-thru stores to open in the next five years, the majority of which will be run by Euro Garages, whose executive chairman is Andy Bond, the ex-Asda chief executive. Greggs, the largest food chain in the UK, is working with Moto to open its first motorway service station outlet near Manchester, while M&S Simply Food is working with SSP on plans to open stores in France.

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For the first time, Greggs is using a third-party operator to move into franchising models and increase the number of locations the business operates in. Moto chief executive Tim Moss explains that his business needs to gain Greggs’ trust before it lets the service station operator run more of its stores (see Q&A with Moto, below). “We always do a single unit to test it out. When we start a new relationship, we have to demonstrate that we can deliver to their satisfaction,” he admits.

“There is a lot of trust that the franchisor gives the franchisee. It is a trust that they put their brand in the hands of someone else. Greggs hasn’t franchised before, it wants to be sure that we will not mess up the brand and we make sure we learn how to deliver that brand properly so it is a seamless experience. It is about creating confidence on both sides.”

Working with third-party operators not only allows brands to expand geographically but to do so with less risk than fully owning and operating outlets.

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Caffe Ritazza: An outlet run by SSP, one of the biggest names in the franchise market

SSP is one of the biggest names behind brands, running its own outlets such as Millie’s Cookies, Caffè Ritazza and baguette shop Upper Crust at stations and airports, as well being a franchisee for Burger King, Costa Coffee and Pizza Hut among others. This week, it announced annual turnover of £1.7bn and profits of £130m, up 13%.

It recently opened Marks & Spencer’s first Food on the Move shop at Baker Street station in London, selling sandwiches and other chilled products as well as having a hot takeaway counter.

M&S head of UK franchise Paul Horwell says the small size of the shop meant that moving his brand into the space wasn’t something the retailer would have considered viable, until discussing the possibilities with SSP (see Q&A with M&S, below).

“This is a good example of how a partnership can come up with something unique. For many years, we have known that our Food on the Move business is market leading and have always thought it would be great if we could get it into a few more places. But we’d never had a format that could deliver that,” he explains.

“SSP had a Whistlestop at Baker Street station that it wasn’t very happy with, so we put our heads together to work out what we could do with it. It’s a tiny space at only 550sq ft, so traditionally not something we would have thought about.”

Horwell won’t confirm any plans for a further rollout into new locations, saying the shop will be reviewed in the new year before any decisions are made.

Just over 200 of Marks & Spencer’s 370 Simply Food stores in the UK are franchised through SSP, petrol forecourt operator BP and Moto, which runs its shops at motorway services. SSP is keen to get the brand into French train stations, following the opening of an M&S store on the Champs Élysées in Paris last month.

Greggs hasn’t franchised before, it wants to be sure that we will not mess up the brand and we make sure we learn how to deliver that brand properly so it is a seemless experience

SSP chief marketing officer Rick Stavast explains: “We are looking at getting it into the travel sector in Paris, in stations rather than airports. Nothing has been decided yet, but considering the success we have with M&S in UK train stations, we would probably look at Simply Food [rather than the new Food on the Move format] first.”

Starbucks has also worked with the operator to launch into new markets, including airports in Finland and Sweden. “It is taking its first steps with us to test the market and use that as a springboard to the high street,” says Stavast.

Like SSP, motorway services operator Moto also runs its own and others’ brands. Moto’s Moss says third-party operators have to be careful about what they choose to promote and this sometimes means marketing other brands above their own.

“We used to promote Moto very heavily on the motorway but we do it less nowadays because high street brands have more traction, as you would expect. People visit service stations on average five times a year and are not experts in knowing what Moto or Welcome Break means,” he admits.

“If you came to a service area ten years ago, the only brand you’d have seen would have been Burger King. But now M&S Simply Food has been joined by KFC, McDonald’s and Waitrose. The environment has become more of a reflection of the high street. People buy more from us when we have brands in our service stations.”

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The space where third parties could develop their own brands, continues Moss, is where no existing high street name is present to service consumer needs. The Moto-owned Eat & Drink Company is a restaurant offering hot breakfasts. “There isn’t a brand in the UK that is particularly successful at providing this service. If there was, we’d franchise it,” he says.

Despite the obvious risk-aversion and expansion benefits of allowing third parties to operate brands, SSP’s Stavast agrees that there can be difficult conversations with brand owners. While they tend to understand their customers extremely well, the third-party operator can sometimes have a strong view on what works in various environments.

“We have to delicately make it very clear that if a brand wants to be successful in a train station or airport, it needs to trust us and listen to us about how we can improve a brand or adapt it to the travel space. That is always a bit tricky because brand owners think their brand is perfect and don’t understand why it wouldn’t work,” he says.

Horwell at M&S agrees: “Franchising gives us an opportunity to trust in someone else’s instincts. Partners recommend things to us that perhaps we wouldn’t traditionally think of doing.”

He gives the example of Euston train station in London, where SSP runs two Simply Food shops. He says: “The larger one is at the front of the station and there is a smaller unit at the back. With our brains in, we might have thought that just the larger shop was sufficient, but because of the way customers access the Underground system from the commuter trains, SSP had a second location that it thought would be ideal.

“We have a second shop at Euston that is smaller than something we’d traditionally opened. But because we are trying to target a niche market, it works. We are capturing customers on their way home when they wouldn’t traditionally have walked past our bigger store.”

But while many third-party partnerships operate in the retail space, the trend is true of other sectors too. Tesco and O2 got together in 2003 to launch Tesco Mobile, and the brands claim the partnership has allowed both to find new customers, of which it now has nearly 3 million. Consumers are also pleased with the partnership. Tesco Mobile is ranked best for customer satisfaction in a survey by consultancy JD Power.

It has mitigated the risk for Tesco moving into a new area where it has no heritage and it provides O2 with a new segment of consumers outside the brand’s normal reach.

“Partnering with O2 allows Tesco to be in the lucrative and fast-growing mobile market and deliver a service that stands out,” explains a Tesco Mobile spokesperson. “From O2’s perspective, providing a mobile network under the Tesco brand allows it to appeal to new customers that are not typically its target market.”

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Clean cut: McBride is one of the UK’s biggest makers of branded and supermarket cleaning products

Finding new groups of consumers is also the focus for laundry and cleaning goods manufacturer McBride (see A big business behind the big brands, below). As a brand owner, the company does not simply act as a white-label manufacturer. Rather, it sees itself helping other brands develop products that expand their portfolios, while also boosting McBride’s own consumer understanding.

McBride’s head of marketing Andy Leydon says the products it creates in partnership with retailers aren’t simply own-label versions of branded goods.

He claims: “Five years ago, the approach would be that a brand comes to market and six to nine months later there is a private-label equivalent on shelf. But that is a scattergun approach. The days when that could be successful are long gone.”

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He adds: “The person that decides whether that is appropriate or not is the consumer. We are investing a lot of time in understanding the consumer, the purchasing hierarchies, perceptions and barriers of private label and using that to drive our new product development.”

This type of partnership has its tricky conversations and pitfalls as well. While the franchise model being explored by Greggs is reliant on the brand trusting the franchisee, for McBride as a manufacturer, it means the business must have faith that its supermarket clients won’t share its secrets with other suppliers.

McBride’s Leydon says that for a third-party operator or producer relationship to work well, everyone involved must have similar goals. He notes: “There is an element of trust. We are a player that represents a huge proportion of UK retailers’ private label estate in the categories we operate in and we don’t expect people to be loose with our intellectual property.

“The innovations we work on drive category growth for both ourselves and the retailer, so we wouldn’t expect them to give that IP away.”

So, while marketers might see third-party management as a leap of faith when it involves putting their brand in someone else’s hands, treated carefully, it could prove to be a lucrative way of innovating during tough economic times.

McBride: A big business behind the big brands

McBride is one of the biggest manufacturers of supermarket own-brand cleaning and laundry products in the UK, making 100 million bottles of bleach at its Middleton factory annually and producing 2.5 billion dishwasher tablets in Europe last year.

As well as being the business behind some of the major multiples’ own-label goods, it also owns limescale remover Lime Lite, oven cleaner Oven Pride and is a licensee of Persil washing-up liquid.

McBride UK head of marketing Andy Leydon says the days of supermarkets lagging behind branded goods are over. Where they might have replicated a branded product several months after it had appeared on-shelf, retailers increasingly want their own-label goods to be innovative.

“Can a private label go out on a limb and start making innovative claims that maybe they don’t just follow the brands, but leap ahead of them? If there is a consumer need, then absolutely. We spend a lot of our time identifying where those opportunities are – not to be a second-class version of a brand, but to be a first-class version of what we want to be.”

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Leydon says supermarkets can create a point of difference through their own-label goods. “We are seeing a move now to create unique positionings for private-label goods, where, for example, brands can’t cater for the different nuances of a Sainsbury’s or an Asda consumer.

“There are always generic needs for consumers, so the product must clean the clothes, for example, but there are slight nuances that we can develop that are very relevant for some retailers. This gives them a point of difference they need which drives the loyalty they are all looking for.”

Leydon explains that in the laundry category, for example, fragrance will be more important to customers of some retailers than others, while some stores will choose to emphasise sensitive skin products. He adds: “These are the types of small distinctions that can enable a retailer to make a claim that they can then capitalise on. Then that strategy can help make it a destination shop.”

McBride is also growing its branded goods business, making different products to those it supplies to supermarkets, so that it doesn’t compete with itself. These include Planet Clean, an ecological laundry range, as well as Lime Lite and Oven Pride.

It has reduced this portfolio from about 20 brands to four or five to focus on developing them as strategic brands. These now make up about 10% of its overall business.

“In terms of having a balanced business model, we choose to operate in fairly niche areas where a brand proposition has more credibility than a private label. So, there is a high level of benefit delivered to the consumer and we pick and choose very carefully where we operate, either via acquisition or organic growth,” says Leydon.

“Instead of having 20 brands that we’d use opportunistically, we now have four or five which have investment and a specific marketing campaign that is going to drive growth for us and retailers.”

While McBride doesn’t get involved with supermarkets’ own-label marketing campaigns, it does advertise its own branded goods. People are likely to buy Oven Pride again once they’ve tried it, claims Leydon, so campaigns are about trial and awareness.

“When we invest in a brand, we invest a lot in understanding whether we should focus on a frequency, loyalty or penetration strategy and then devise campaigns around that.”

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Q&A: Marks & Spencer

Paul Horwell, head of UK franchise, Marks & Spencer

Marketing Week (MW): When and why did Marks & Spencer start franchising?

Paul Horwell (PH): We thought long and hard about whether it was right to franchise the M&S brand in the UK. We’d been doing it for many years abroad, primarily with clothing, but it’s not something we’d really considered in the UK.

We have franchised M&S Simply Food since 2001. The concept around that was making M&S convenience food even more convenient. We looked around all the places on the high street that we’d like to put it and realised there were lots of places that we didn’t have expertise in. We decided to work with some other people and the railway stations were the first places we decided to do that.

We work with SSP because it has access to property in that market and it understood the sector and how to make things happen.

MW: Why not just open stores in train stations yourself?

PH: There are simple things like delivery access – there’s a whole complication when you are working in a railway station compared with a high street or out-of-town complex, and SSP knows how those things work.
It has relationships with station managers and landlords too. Some of that we could have learned over time and we now have contacts with those guys ourselves, but that is SSP’s core business. Why not work with someone who understands that trading environment, knows all the key decision-makers and can make things happen quickly?

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French connection: Marks and Spencer plans to franchise Simply Food in Paris

MW: What is the best way to let someone else run your brand?

PH: Once you have overcome the barrier of trying to work with a partner, the real key is in choosing the right partners to work with.

We only have three partners in the UK and spent the majority of the time making the decision on which we work with. We only work with SSP, Moto [for motorway service stations] and BP [in petrol station forecourts].

We have a very good understanding of the M&S brand and our partners have a very good understanding of their chosen environments. So when you put those bits together, you get something that is quite special.

MW: What are the challenges in letting third parties run your brand?

PH: There are some bits that are slightly different. BP uses a different till system, for example. Some airports and forecourts operate for 24 hours, so we have to make sure we have food availability. I wouldn’t say it is a difficulty, it is just something we weren’t used to before.

One thing we have to be mindful of is that if we speak to a store manager at a franchise, we are not talking directly to an M&S employee; we are talking to a manager of a third-party operator. The employees are those of the partners. We put them through quite a bit of training to make sure the customer experience is seamless.

We want the customer experience to be the same so we want staff to have the same mindsets that we have in our own shops. That applies to something as simple as our policy of charging for carrier bags.

We now have 210 franchised stores and without strong relationships we would never have been able to do that. Therefore, maintaining those relationships on an ongoing basis is a focus. A lot of the stuff I do with my team and franchise partners’ teams is making sure they bond.

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Q&A: Moto – the name behind the brand

Tim Moss, chief executive, Moto

Marketing Week (MW): How do you approach running someone else’s brand?

Tim Moss (TM): We strive wherever possible to achieve results that are higher than the franchisors’ own results in terms of standards within the [shop] units, so from the customer’s perspective, it is a seamless experience.

MW: Does Moto taking the risk for a brand allow it to try out new formats?

TM: The motorway service market is more conservative, so we tend to see the trends later. So the first time people might try a new food brand it might be somewhere like Canary Wharf, then it might be Heathrow Airport and then the London stations. Then it might extend to the West End, to the provinces and to service stations.

MW: Why aren’t less established brands seen at service stations?

TM: Motorway service stations effectively lose money by being at the cutting edge of brand development. People come from all over the country so don’t have that familiarity [with newer brands].

If they saw [upmarket takeaway brand] Leon in a motorway service station, not knowing what it is, they wouldn’t necessarily go and buy from it. Would we want to offer a brand like that in the future? Yes, that would be great, as the distribution gets wider and people recognise it more.

MW: What trends do you see happening?

TM: We see the snacking trend of the last five or six years continuing. People used to come into Little Chef and buy a starter, main course and dessert but now people buy hot or cold food at any time of day or night.

There will be more convenience food and packaged food, along with fewer plated, traditional English meals.

MW: What can brands learn from Moto?

TM: Our main priority is to learn from them rather than the other way round. We pay a franchise fee to take advantage of the franchisor’s expertise. There is no point paying that to tell a brand what to do.

We always try to run a brand in line with how the owner would; that is why we enter the relationship and is the reason why we quite like being told what to do and how to do it.

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