Benefits of Licensing Established Name Brands
Walk down any frozen food aisle in the United States, and you’ll see a large and growing variety of well-known restaurant and food brands on products ranging from entrées to appetizers to side dishes. Chain restaurants such as TGI Friday’s, Steak n Shake, California Pizza Kitchen and P.F. Chang’s rub elbows with regional chains like Nathan’s Famous, O’Charley’s and Rally’s. Even outside the United States, brands like Pizza Express are entering the market with name brand fresh and frozen entrées.
That’s because all of these brands have been licensed by frozen food manufacturers to put their names on such frozen food products—a process that allows a manufacturer to “rent” the value of the name brand, paying a royalty to the brand owner for that “famous” logo. Here is a breakdown of the benefits of licensing established name brands.
Consumers are loyal to name brands
Licensing is effective because Americans love brands, and will try products with a brand name they know and trust. In turn, many frozen food manufacturers have embraced licensing because it’s far cheaper to “rent” a well-known, long-established brand than to build a new one from scratch.
In addition, raising consumer awareness for a new brand and getting consumers to buy it is horribly expensive, demanding a large investment in advertising, promotion, couponing, slotting fees, in-store sampling, etc. The savings that come from licensing an established brand explains why even giant CPG companies such as Heinz (Boston Market and Friday’s) or Nestlé (California Pizza Kitchen) have embraced licensing.
Licensing a strong brand name dramatically cuts the product’s time-to-market, taking advantage of instant recognition by both retailers and consumers. Licensing not only drives consumer trial, but also makes retail sell-in easier—store buyers and divisional merchandise managers are consumers too, and are more open to a brand they (and their customers) know than one they’ve never heard of. Furthermore, retail stores are said to be more comfortable with national brands because they associate them with promotional spends, couponing, etc.
Another advantage to becoming a licensee is “job security.” Unlike co-packing or contract manufacturing where contracts can be cancelled on 90 days’ notice, licensing deals typically extend from 3-5 years or longer. This allows for greater stability in revenue forecasting, strategic planning of product line extensions, capital investments and financing.
How to become a good candidate for licensing
Despite the tremendous advantages resulting from licensing a well-known brand, not all frozen food processors are good candidates to become licensees. Why? Because it’s not enough simply to have a great product and manufacturing capabilities. You also need to have a retail sales and distribution process already in place to successfully launch a licensed product. Companies who manufacture but don’t have a sales force or broker network will find it difficult to secure a well-known brand.
For those manufacturers that have both manufacturing and retail distribution, the next step is finding the “right fit” brand that works naturally with your products in a way that meets consumers’ expectations. For example, if your production lines only can handle breaded fried appetizers, then stay away from restaurants whose signature items are grilled or sauce-based. Plus, targeting brands that fit with your product strategy requires flexibility and attention to detail. We recently worked with a manufacturer who had their heart set on becoming a Disney licensee. They wasted countless valuable hours brainstorming and planning a line around the Mouse before finding out (via a simple Google search) that Disney already had a licensee in that category.
It’s also important to try and get an understanding of what the licensor is looking for, and what it would be like to work with them. Some licensors are notoriously hard to work with—demanding, greedy or don’t support their licensees at retail with promotional dollars or co-op advertising. Be prepared to shop around and not be too focused on securing only one brand.
Restaurant brands especially understand the positive “bounce back” effect that licensing can have—consumers who buy licensed products at retail will then be more likely to eat out at the restaurant chain. Everybody wins. Because of this, licensors are often more willing to support a licensee through important marketing and promotional activities that increase the visibility—and purchase opportunities—of the licensed products at retail. This support is important in helping to offset the costs to the licensee of bringing products to market and ensuring sell-through.
While licensing isn’t without risks, and employing a brand acquisition licensing agency can help navigate the shoals of this very specialized licensing marketplace, the right brand on the right product will still be a winner.