With a single deal, the 11-unit Slater’s 50/50 casual-dining chain added 2,500 sales outlets this fall for its signature burger, a 50-50 grind of beef and bacon.
It’s the sort of quantum leap that 11-unit Wow Bao knows well, having used the same strategy to introduce consumers in hundreds of additional locations to bao, the fast-casual brand’s trademark savory Asian buns.
It’s also the route Moe’s Southwest Grill parent Focus Brands has used since Day One to build familiarity with its brands outside their core market areas—forging a significant stream of revenues in the process. Last year, products bearing the name of a Focus brand generated sales of $810.4 million, according to License Global magazine—or more than the systemwide sales of Moe’s, Focus’ sales leader.
All three operations are among the beneficiaries of licensing, long a source of additional revenues for big restaurant chains, but often one that was not aggressively pursued, especially by small brands. Instead of selling a generic product, food processors and retailers pay restaurants a fee or percentage of sales to sell retail products emblazoned with those partners’ brand names.
It has long been viewed as an ancillary business, and as close as some big brands can come to found money. Industry lore holds that McDonald’s bought bankrupt Boston Market for $173.5 million in 1999 because it wanted the chain’s 751 sites—only to discover the chicken chain was making tens of millions from the sale of Boston Market-branded frozen sides.
Licensing once seemed closely correlated with chain size or widespread awareness of a brand’s specialty. TGI Fridays built on its renown as a place to have a cocktail by licensing its name to a line of drink mixes. Chi-Chi’s, the now-defunct Mexican casual chain, was a pioneer in the field, lending its name to chips and salsa sold in supermarkets. The snacks are still available, though the restaurants are gone.
Recent deals suggest that size or renown may not be as much of a factor today. Slater’s readily acknowledges that many customers of Walmart, the casual chain’s new licensing partner, aren’t familiar with its signature burger. That’s in part why the restaurant operation opted to sell the frozen patties in single-serving packages.
“It allows people not to have to buy them in bulk,” says Dave Eldredge, director of marketing for Slater’s parent, Elite Restaurant Group. Customers are more apt to commit if they’re only gambling on one burger, and hence more likely to sample the product that made Slater’s a much-watched concept several years ago.
“It’s a penny business—no one’s retiring on this whatsoever. But you get this out on a national scale, then you’re talking about two important things: first, recognition. And then you start getting the volume where that penny profit adds up.” –Geoff Alexander, Wow Bao
The process is also a way of deepening Elite’s licensing know-how. Before the Walmart deal—“That’s Moby Dick in this business,” says Eldredge—Elite had entered into an agreement for limited distribution of its burger patties via Walmart’s smaller retailing sister, Sam’s Club.
The collaboration with Walmart is just beginning to unfold. “It was kind of a crawl, walk, run process,” acknowledges Eldredge. “There was a lot of trial and vetting.”
But, already, Elite is thinking about other licensing opportunities. For instance, Slater’s has a bacon-flavored ketchup that’s unique to the brand.
In addition, “we’re moving beyond Slater’s. There are different discussions about licensing across all of our brands,” he says. Those other operations include Patxi’s Pizza, Daphne’s California Greek, Project Pie and Gigi’s Cupcakes.
The beef-bacon patties sold through Walmart and Sam’s Club are produced by an outside party using Slater’s recipe. Elite then works with a distributor to get the patties to the stores in exchange for royalties on the sales.
The revenues could be very significant, says Eldredge, though he declines to provide a projection, noting that Elite is privately owned.
But a big part of the attraction is the opportunity to essentially presell the Slater’s brand. Right now, all of its units are grouped in California, and Elite has ambitious expansion plans for the brand, including growth through franchising.
“It’s a penny business—no one’s retiring on this whatsoever,” says Geoff Alexander, president of Wow Bao, which recently added the 44-store Mariano’s grocery chain to the 200 or so retailers that carry Wow’s frozen bao. “But you get this out on a national scale, then you’re talking about two important things: first, recognition. And then you start getting the volume where that penny profit adds up.”
He can’t quantify the marketing value. Bao aren’t widely known in Wow Bao’s core Midwest market, as the chain learned when it set up a stand at Chicago’s popular Lollapalooza music festival. “The first year, people came up and asked us, ‘What’s a bao?’ The second year, they came up and said, ‘Hey, got any more of those bao?’” Alexander recalls.
Familiarity will hopefully bolster interest in the dumpling-like buns, which will in turn translate into interest in Wow Bao, which has grown in part by expanding into nontraditional sites such as airports. In the meantime, there are those penny profits adding up.
“It’s about being an entrepreneur and figuring out how to grow your brand,” says Alexander. “This has the potential to become a very large part of our business. We’re still at the very, very tip of the iceberg.”
“We want to be where our guests, fans, consumers are going to be. It might not be a brick-and-mortar location.” —Dave Mikita, Focus Brands
Scale is a reality for Focus Brands, which has been licensing since it was founded in 2001. Today, its licensing department has a core staff that ranges from 18 to 20 people. Elite, in comparison, has three people whose duties include working on the arrangements. Wow Bao’s Alexander is the one-man licensing division at his company.
Focus finished first among all restaurant operators and 56th overall on License Global’s 2018 ranking of licensors by sales of products bearing their brands. In second place for restaurants was Fridays, No. 101 overall, with $250 million in product sales, followed by Wolfgang Puck ($148 million), Tony Roma’s ($130 million) and Cold Stone Creamery ($102.7 million).
“It’s been a journey, starting with our snack brands,” says Dave Mikita, SVP and president of global channels for Focus, referring to holdings for the company such as Cinnabon, Auntie Anne’s and Carvel. “They deconstruct well, they apply well across multiple channels.”
Cinnabon’s name, for instance, can be found on products ranging from cereal to a dessert sold by other restaurant operators such as Taco Bell and KFC.
“What we have now is a really well-defined and well-running model,” he says. “Why not deploy the model more?” Focus recently struck a deal to sell Moe’s-brand packaged meats in supermarkets. It anticipates seeking additional deals for all of the company’s brands, which include Jamba, Schlotzsky’s and McAlister’s Deli.
Scale doesn’t lessen the marketing advantages of getting a brand name into markets where restaurants have yet to fly the flag. Cinnabon, for instance, “has a 94% brand awareness among consumers,” says Mikita. “Where our bakeries are located, we can barely reach 50% of the population.”
Similarly, consumers in California can walk into a supermarket and buy a Carvel-brand ice cream cake. But if they want one of Carvel’s signature soft-serve cones, they’ll have to fly to the other side of the country: The chain is still largely concentrated in the East.
Still, with more than 6,500 restaurants franchised by one of its brands, Focus faces the likelihood that licensed products are within reach of franchisees’ patrons. Will they buy something from the supermarket instead of popping into a unit?
For one thing, the products are often different, Mikita notes. Cinnabon units don’t sell cereal or pancakes, two of the retail products that carry the brand’s name.
“We just have to be really thoughtful,” says Mikita. “We take it really seriously, this sense of a brand ecosystem. At the center of that ecosystem are our franchisees. If we bump up against them, we need to reconsider what we’re doing and come back at it.”
As part of that approach, Mikita meets often with the franchise advisory councils of its brands.
“We are first and foremost a franchisor,” he says. “But if you look at how successful companies become that way, it’s all about building brand equity. Everything we do is done so that we don’t create a competitive situation and that we build brand equity.”
More licensing is certain to come for the company’s brands. Says Mikita, “We want to be where our guests, fans, consumers are going to be. It might not be a brick-and-mortar location.”