Brands who entrust their precious business to others

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.

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.

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.”

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.”

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.”

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.