Product Licensing: Is It Right for Your Franchise Brand?

A recent article in QSR magazine explores how foodservice companies can increase sales and build stronger brand loyalty with consumers by licensing their products for sale in supermarkets and other retail outlets. This strategy benefits consumers, who now can buy take-home versions of their favorite foods from their favorite restaurants. Retailers benefit from increased revenue by offering popular products in their stores. And the brand itself benefits from an additional revenue stream to add to its franchise fees and royalty streams.

Examples of foodservice brands successfully adding retail sales of their restaurant products include P.F. Chang's, Jamba Juice, and Macaroni Grill, among others, writes Nancy Bailey, founder of Nancy Bailey & Associates.

Licensing can also serve other purposes, such as serving as an advance market research and marketing tool when a regional brand is considering entry into a new market. According to Bailey, "licensing has become an increasingly popular, cost-effective way for restaurants to introduce a brand to market, ahead of brick-and-mortar expansion."

Compared with the cost of opening a physical store to explore a new market, the risk is low, and the potential for making connections with new consumers high. Writes Bailey, "For regional brands considering geographic expansion, the low-cost introduction to the market is a priceless touch point with consumers." She notes that this strategy has proven effective in pre-expansion initiatives for regional brands such as Cinnabon and California Pizza.

For some foodservice brands that have already moved forward with licensing their products in supermarkets, sales from their licensing program are exceeding their store sales. Such is the case with Marie Callendar's: in 2011, writes Bailey, the brand's frozen food sales (pot pies, desserts, and dinners) reached $800 million.

And P.F. Chang's, beyond simply placing its products in supermarkets about 2 years ago, created a feature on its website that allows consumers to search their area to see (a) which stores are offering the brand's products, and (b) which products are currently available. Bailey notes that this allows loyal customers who don't live near a P.F. Chang's restaurant to contribute to a brand's revenue stream, even when they're not in the restaurant. Bailey writes that sales of licensed P.F. Chang's products are expected to top $100 million this year.

For brand managers worried about supermarket sales cutting into their existing restaurant sales, Bailey says not to worry - quite the opposite in fact: "There is a school of thought that licensed products will detract from foot traffic in restaurants. However, products sold in the supermarket will not replace the experience of dining out; it's a different usage occasion." The store-bought products, she writes, "are an alternative that allows consumers to capture part of that experience from home."

One cautionary note she offers is that when consumers buy frozen, take-home versions of their restaurant menu favorites, they are looking to recreate the positive experiences they have enjoyed in the brand's brick-and-mortar restaurants. Even though eating at home is a different "usage" experience, the food had better be good, or it could detract from restaurant sales; as well as turn off potential new customers and fans when the brand does arrive in the market with physical locations.