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Are Two Brands Better than One?
Still wondering if you should jump on the multi-brand bandwagon? The Quarterly helps clarify and untangle a popular topic among franchisees.
By Christa Gala
What if the Colonel hadn’t discovered the Bucket? Where would we be if consumers had snubbed the drive-thru window? Without these innovations—and several others—the American notion of fast food may well have fizzled out several decades ago. But it didn’t—and for one big reason: convenience. The Bucket and the drive-thru made life easier. And when folks discovered these conveniences were coupled with good food, an industry was born. The next innovative pillar in fast food is multi-branding. And why not? The concept follows the tenets of convenience and good food, with a bonus offering of one other thing consumers love—choice. Still, multibranding is often a tricky juggling act, making it tough for operators to match quality between brands and operational standards without dropping any balls. As a franchisee, is it a viable option for you? Here, we discuss the challenges and benefits of multibranding, as well as what Yum! is doing to soften the transition.
Serious Business You need only look at the numbers to understand how serious Yum! is about multibranding. The first multi-brand restaurant made its debut in 1992; today, there are more than 2,100 restaurants in the United States alone, representing more than 12 percent of the system and accounting for 14 percent of Yum!’s profits, says company spokesperson Dennis Whittington. Speaking of profits, corporate statistics show that multi-brand restaurants produce higher unit volumes and higher cash flows than stand-alone restaurants. In addition, the customers whispering in Yum!’s ear, saying they prefer multi-brand restaurants six to one because there is a greater likelihood each family member will find something they like to order since there are more menu choices, says Rick Trebilcock, Yum!’s Chief Marketing Officer of Multibranding. “By providing a branded choice variety, multibranding solves the group and family meal dilemma and helps overcome the veto vote,” says Trebilcock. “This is a key point of differentiation versus the competition and one that cannot be easily duplicated.” Another reason multibranding is so important is that it can provide a “growth engine” for the system in several ways, says Trebilcock. First, multibranded concepts will help the system grow in trade areas that might not support a single restaurant. Second, multibranding will help fuel lesser known brands such as Long John Silver’s and A&W. In 2004, much progress was made in multibranding, particularly with strong sales for new openings, including Taco Bell/LJS, KFC/LJS and LJS/A&W restaurants, according to Trebilcock. These pairings are recommended for franchisees, along with KFC/A&W and limited pairings with KFC/Taco Bell. A large part of the recent success of multibranding is due to training programs and operational streamlining to ensure the success of two concepts under one roof. It’s an ongoing task for Yum! “We continue to improve our operational execution in all multi-brand restaurants with programs like the new RGM assessment and Back of House improvements like the new integrated line,” Trebilcock says.
Is Multi-branding for you? Corporate projections estimate multibranding will earn nearly $400 million in profits and fees by 2006. Although it’s easy to get swept away by the numbers, is multibranding for every franchisee? What qualities make for a successful multi-brand operator? Although Aylwin Lewis recently left his presidential post at Yum! to take the helm as CEO at K-Mart, he had some definitive ideas about what needed to be present for a multi-brand restaurant to produce big numbers, things that aren’t likely to change anytime soon. “Multibranding will not work if we do not pick great locations; have two strong brands represented to the customers as close to fifty-fifty as the KFC Franchise contract will allow; pick the right management team with strong skills to lead the restaurant; and pick great operators to open and run multi-brand restaurants,” he says. Another important aspect of success as a multi-brand operator has to do with “scale,” according to Tom Burress, Yum!’s Vice President of Restaurant Excellence. “Multibrands are definitely more complex to operate than a single brand,” he says. “In order to build expertise in the concept brand, the franchisee will need a number of the same type of multi-brand restaurants proportional to the size of their operation. We believe it is so critical to success that it’s now part of the multi-brand contract.” Trebilcock cautions franchisees to remember that A&W and LJS, two of the main pairing concepts, are “smaller, lesser known brands than KFC, Pizza Hut or Taco Bell. Franchisees should be prepared to do more trade area marketing activities like local sponsorships and events, as well as print coupons, bouncebacks, billboards and so forth to help build awareness for these smaller brands.”
The Growth Ready Process Still, as a franchisee, how do you know if multi-branding is a good investment or that you’ll be as successful as you are as a single-concept operator? That’s where the Growth Ready Process comes in. Burress says it was designed to indicate whether or not a franchisee’s current performance in a variety of areas will mesh with multibranding. Requirements are based on lessons learned from opening hundreds of multi-brand restaurants over the past two years. The Growth Ready Process was implemented for franchisees at the beginning of 2004—a year after company restaurants. The first step to becoming a multi-brand operator is to achieve the “entity level” standard. A company or franchisee must get to this level before multibranding growth can even be considered. The entity level screen or test is completed just once a calendar year, in January. In order to pass, franchisees must successfully utilize the following categories in their current operations: Balanced Scorecard, Bench Planning, Mania Training and Training & Ops Infrastructure. In layman’s terms, it means franchisees should use the Balanced Scorecard process to evaluate people, sales and profits; use the Yum! Brands Bench Planning tools; conduct customer mania training four times a year; and have one training restaurant for every ten multi-brands of the same type. Entity level approval is not given if the organization cannot answer “yes” to these categories, meaning they actively utilize them; the organization or franchisee must then wait until the next calendar year to reapply. If approval is given and a multi-brand site is chosen, the Yum! Multibrand team will send a coach to the training restaurant to conduct concept training for the future management team, including specific brand training and multi-brand mindset training. Typically, this training occurs 90 to 120 days prior to the opening. Once the entity screen is passed, franchisees operating in more than one demographical area are required to successfully pass the DMA (Demographic Marketing Area) screen in each DMA before multi-brand growth can occur. Dovetailing with The Growth Ready Process is the Run Great Restaurants Program. The Growth Ready Process basically identifies those operators who have been adhering to and succeeding with the Run Great Restaurants Program all along. In other words, it would be hard to pass the Growth Ready Process if you’re not already following the Run Great Restaurants program. The two truly go hand in hand. The secret behind the RGR program is excellence and consistency. After all, if a customer has a good experience once at your restaurant, then returns and has a bad experience, what are the chances he or she will return a third time if unsure about food quality or customer service. Why wouldn’t he or she choose another restaurant? Wouldn’t you? That mentality is what launched the program and what keeps it running. To jog your memory, RGR goals include: · Number one status in all C.H.A.M.P.S measurements (Cleanliness, Hospitality, Accuracy, Product Quality and Speed of Service) both internally and externally; · A minimum score of 95 percent or higher on CER; · Consistent sales growth of at least 2 percent; · Ensuring 95 percent of employees system-wide are Customer Maniacs; · Above average target on Balanced Scorecard; and · Employee retention—exhibiting no more than 50 percent team-member turnover. It seems like a tall order, but the good news is that these programs—The Growth Ready Process and Run Great Restaurants program—are proven to work. So, as a franchisee, what you’ve got is a guide to follow, a veritable formula for success.
Help in Hiring While every improvement and innovation count, franchisees know the key to success in this business is in hiring and training good people. It’s especially important for multi-brand restaurants, particularly when it comes to the Regional General Manager. Proficient RGMs are critical to multibranding success. The RGM Assessment & Development program, developed by Yum!, helps franchisees measure a candidate’s skills in four skill sets: communication, business reasoning, time management and dealing with change. Each assessment costs $195. Here’s how it works: The RGM candidate is given a set of case study materials and allowed to review it for 45 minutes. Then, professional assessors conduct a series of role-plays via telephone, lasting one hour and forty minutes. Just 24 hours after the assessment, the candidate is given an overall rating as well as feedback based on the four skill sets. The rating scale is refreshingly direct and lets the franchisee know not only if the candidate is ready for the RGM position, but, if not, when he will be. For example, passing ratings include “Ready Now” and “Ready in 1 to 6 months.” Candidates must simply complete suggested activities from the RGM Development Guide before they’re eligible to start work. A candidate can also be rated “Ready in 7 to 18 months” and “Ready in Greater than 18 months.” These scores, considered failing, indicate to franchisees that the candidate isn’t ready for a RGM position. Candidates, however, are encouraged to complete activities from the Development Guide and retake the assessment when their rating time (7 to 18 months or greater than 18 months) has expired. Candidates may take the assessment three times. The test has become the barometer for successful RGMs. “More than 1,200 Regional General Managers have now taken the assessment, and independent research indicates that RGMs passing the assessment operate better multi-brand restaurants as measured by sales, profits, Balanced Scorecard, C.H.A.M.P.S. and speed with service,” says Burress. “The assessment measures the critical leadership skills proven necessary to successfully operate a multi-brand restaurant. It should be viewed as tool that identifies skills in need of further development.” In an effort to help RGMs focus on building skills that may need further development, Burress says an expanded toolkit will be available by the end of the year to help keep skills sharp.
Looking Ahead So, what’s working now? Lewis points to new building and kitchen designs for multi-brand restaurants, as well as profit margin improvements, standards for the Growth Ready Process and the RGM Assessment and Development program. Burress says: “By the end of 2004, we will have opened 122 KFC/Long John Silver’s, 307 KFC/A&Ws and 671 KFC/Taco Bells. We have expended much energy and effort during the year optimizing our multibrand back-of-the-house layouts in the new Y04 buildings. We have achieved considerable improvement in speed of service and labor productivity by integrating our service lines. Currently, we are testing several versions of a combined and integrated KFC/Taco Bell line and anticipate having a more integrated KFC/Long John Silver’s line in testing by the end of the year.” New marketing strategies are doing well too, not to be outdone by financial and operational programs. “What’s working from a marketing perspective is our new 4-1-4 balanced menu boards, better integration of brand promotions in a multi-brand environment and many of our focused marketing tactics that are helping improve co-brand sales,” says Trebilcock. Apparently 2004 provided good lessons regarding the importance of balancing the brands in a co-branded restaurant. “Consumer focus groups told us that if one of the brands is perceived as secondary, they believe it isn’t of the same quality as the larger brand,” Trebilcock says. As a result, that’s one of the things Yum! plans to work on in 2005, in addition to stronger tactics for Grand Openings and an added focus in co-brand markets by forming co-ops with base A&W franchisees. Another objective to note for 2005 is the continuation of the “Fish First” strategy, pairing Long John Silver’s with the sturdy legacy brands of KFC, Taco Bell and Pizza Hut, in an effort to broaden the LJS chain. It was in large part responsible for impressive profits this year. “As the LJS concept has expanded, we continue to gain operational learnings, as well as trade area and demographic learning,” says Chuck Rawley, Yum!’s Chief Development Officer. “The Multibrand engineering team is working to optimize the back of house and improve productivity through new layouts and equipment. The Development Team continues to pursue Value Engineering initiatives to offset building and equipment inflation.” Amazingly, Yum! and its collective franchisees plan to build, convert or rebuild another 500 multi-brand restaurants in 2004, according to company spokesperson Dennis Whittington, company spokesperson, with another possible 10,000 restaurants slated for the future. It looks like multibranding is here to stay.
The Costs of Multibranding (Facilities Sidebar) So, what would it cost to have a Yum! Multibrand franchise? It basically depends on what you want to build, according to Chuck Rawley, Chief Development Officer at Yum! With a construction cost index of 1.0 (as seen in Dallas, TX), these figures represent the funding involved with baseline standard building and equipment costs:
Rawley points out that a variety of construction costs—including those for land, lease and site work—varies significantly from site to site. And remodeling costs vary as well and are dependent upon the market costs and the condition of the existing building. Regardless of whether you plan to build new or remodel, franchisees are required to go through the following, says Rawley:
Rawley suggests franchisees contact their Franchise Development Director for more information.
An Update on Fish First (Sidebar)
Co-branding Long John Silver’s with Yum!’s legacy brands (particularly KFC and Taco Bell) and also A&W is fueling the LJS concept and spreading the popularity of multibranding among consumers. From January 1 through September 2004, 99 Long John Silver’s restaurants were added, resulting in a Long John Silver’s system that is 30 percent multibranded, according to Chuck Rawley, Chief Development Officer at Yum! Consider the pairings this past year as a result of Yum!’s Fish First Initiative:
Pairings 2003 Year End September 2004 A&W/Long John Silver’s 218 253 KFC/Long John Silver’s 60 105 Taco Bell/Long John Silver’s 48 67
Growth Potential for LJS pairings According to Rawley’s figures:
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