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Weekly UpdatesFor McDonald's, "It is certainly a matter of when, not if," it experiments with multibranding, according to a spokesperson for the company back in 2001. (20) The time appears to be now, as McDonald's began in 2003 to experiment with new concepts in existing restaurants. Eleven units in Indiana have added a diner, and one unit in Nebraska has a three-in-one concept with a McDonald's traditional menu, an upscale sandwich shop, and a separate treats area with baked goods and desserts. (21)
The benefits of multibranding include increasing sales volumes and unit profitability. Yum! reports that each time it combines brands in a unit, sales have jumped 30 percent. (22) In addition, the daypart strategy seems to work for Yum! and for other QSR chains. For Allied Domecq, for instance, the addition of the Togo's chain allowed it to move beyond impulse snack or breakfast items into lunch and dinner periods. Moreover, by offering two or more brands restaurant companies can also enter into small trade areas that have expensive real estate. "Now we can go into trade areas that we couldn't go into with an individual brand," noted Chuck Rawley, Yum!'s chief development officer. (23) Sharing crew, storage, and production space permits a more efficient use of the asset.
The dramatic improvements in unit sales and the need to modernize and remodel outdated restaurants have motivated Yum! Brands to remodel much of its existing asset base. Unit design in the past had been decentralized to the brand level, but in 2002, it was centralized with the creation of a new corporate position, a senior vice president for concept design and multibranding. (24) Design is now connected to brand marketing and consumer preferences rather than being a development function.
Multibranding is not without challenges. Potential problems may include encroaching on existing units' sales, and the difficulties of operating substantially more complex store-level operations. While encroachment does not appear to be a serious issue, execution has been complicated. To handle the needed capability to operate complex cobranded restaurants, the company has developed simplified operating and training systems. (25)
The goals of multibranding, as stated by CEO David C. Novak, are to bring KFC and Taco Bell to distribution parity with Burger King, which has eight thousand units in the United States, and to have volumes of at least $1.1 million per restaurant. (26) To that end, the company proposes to more than triple its cobranded units by 2007. (27) Exhibit 1 shows the number of multibranded restaurants by concept combination.
The latest experiments include the partnering of Pizza Hut with the fifteen-unit fast-casual Pasta Bravo chain. (28) Based in California, Pasta Bravo serves a variety of freshly prepared pasta dishes family style. A signature menu item is a $12.95 bucket of spaghetti and meat sauce serving four to six people. The partnership is in the form of a licensing agreement, in which limited tests in primarily franchisee-operated dine-in units will determine whether this pairing is viable.
Questions for the Future
Multibranding appears to be a promising strategy for the mature QSR industry. Should Yum! Brands partner with or acquire another quick-service or fast-casual chain? What concepts make the most sense in light of changing consumer preferences? If multibranding proves to be a profitable strategy, should the company
A Profile of Yum! Brands
The world's largest quick-service restaurant (QSR) franchisor, with global sales in excess of $24 billion, Yum! Brands, Inc., operates five brands with 30,837 restaurants worldwide. Acquisition and renaming of the company occurred in 2002 when the company added the A&W Root Beer and Long John Silver brands from Yorkshire Global Restaurants and then changed its name from Tricon Global Restaurants to its current name. Seven years prior, the company was spun off from PepsiCo as an independent, publicly owned company, operating KFC, Pizza Hut, and Taco Bell.
The company's strategy is to engage in international expansion, accelerate multibranding of restaurants, and grow through the develop of a portfolio of category-leading brands. Solid cash generation through franchise fees, restaurant margins, and returns on invested capital are also elements of the corporate strategy. In spite of the soft economy in 2003, the company announced plans to grow earnings per share (EPS) at least 10 percent annually. Key to its profitability is new restaurant expansion, primarily by opening restaurants with company franchisees and joint-venture partners. In China, for example, the company has some 1,100 KFCs and 130 Pizza Huts in more than 240 cities. Mainland China accounted for more than one-third of the company's international business in 2003 and about 13 percent of its operating profits.--C.A.E. consider a move to casual-dining concepts'? What would be a good menu category to add to the current portfolio? "If you pair a hot emerging brand with a proven one in a real-estate context that already has strong drawing power, you can take advantage of complementary natures for frequency, reach, and freshness," suggested Sarah Palisi-Chapin, CEO of the restaurant research and development firm Enersyst. (29) While the fast-food industry struggles to reinvent itself and hold on to affluent, quality-driven baby boomers, new concepts may need to be developed for the emerging Generation X and Y palates. If so, how should Yum! Brands experiment with and expand its multiple branding?
Endnotes
(1.) "Who Moved McDonald's Cheese'?," Display & Design Ideas 38 (June 2003): 3.
(2.) M. B. Horn, E. A. Ledet, and S. Rauch, "Fast Food Hits the Brakes," McKinsey Quarterly 2 (2002): 9.
(3.) S. Hume, "Back to the Future." Restaurants & Institutions, July 15, 2003, 20.
(4.) A. Garber, "Supersized: McD Sales Jump 15% in October." Nation's Restaurant News, November 17, 2003, 1.
(5.) "Wendy's U.S. Same-Store Sales Jump 7.6.% in October," Nation's Restaurant News, November 17, 2003, 12.
(6.) M. Boltz Chapman. "Future of Fast Food(' Chain Leader. July 2003, 8.
(7.) D. Milton, Standard & Poor's Industry Surveys: Restaurants (New York: McGraw Hill, 2003).
(8.) A. Garber, "'Turnaround Plans Bring Changes to McD, BK Franchisees," Nation's Restaurant News. November 10, 2003, 125.
(9.) Ibid.
(10.) Calculation is based on National Restaurant Association, 2004 Restaurant Industry Forecast, www.restaurant.org/pdfs/research/2004_forecast_execsummary.pdf (accessed April 30, 2004).
(11.) E. Buecy. "Yum, ADQSR Multibranding Sets Pace for Others Despite Trend's Mixed Results." Nation's Restaurant News, May 24, 2004, 6-8.
(12.) Ibid., 8.
(13.) Ibid., 6.
(14.) Yum! Brands, Inc., Annual Report for 2002, and Triton Global Restaurants, Annual Report for 2001, http://www.yum.com/investors/ annualreport.htm.
(15.) A. Zuber, "Accelerated Multibrand Growth Plan Puts Triton in Driver's Seat." Nation's Restaurant News, February 25, 2002, 64.
(16.) Yum! Brands, Inc., Annual Report for 2002, 15.
(17.) B. Sperber, "Tricon's Menu Redefines Multi-Branding Concepts," Brand,reek, March 18, 2002, 7.
(18.) A. Zuber, "To Market, to Market: Chains Find Strength in Numbers, Use Co-Branding as Growth Vehicle," Nation's Restaurant News, February 5, 2001, 45-48.
(19.) Buecy, "Yum, ADQSR Multibranding Sets Pace." 6.
(20.) Ibid.
(21.) A. Garber. "Thinking outside the Box." Nation's Restaurant News, October 20, 2003, pp. 71-74.
(22.) Sperber. "Tricon's Menu Redefines MultiBranding Concepts," 7.
(23.) Zuber. "To Market, to Market," 45-48.
(24.) Garber, "Thinking outside the Box." 71-74.
(25.) Yum! Brands. Inc., Annual Report for 2002, 7.
(26.) Ibid., p. 6.
(27.) L. Lohmeyer, "'New Pizza Hut Prototype Pushes YUM Multibrand Growth Strategy." Nation's Restaurant News, February 10, 2003, 1.
(28.) J. Peters, "Yum! Brands Steps Up Co-Branding with Pizza Hut-Pasta Bravo Pairing," Nation's Restaurant News. August 5, 2002. 1; "Yum! Slates New' Format Test, Airs Service Details." Restaurant Business, August 15, 2002, 13: and "Pizza Hut's New Pasta," Chain Leader, September 2002, 4.
(29.) Sperber, "Tricon's Menu Redefines MultiBranding Concepts," 7.
Cathy A. Enz, Ph.D., is the Louis G. Schaeneman Jr. Professor of Innovation and Dynamic Management at the Cornell University School of Hotel Administration (cae4@cornell.edu).
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