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Can co-branding improve a coffee offering?

31 October 2007
Can co-branding improve a coffee offering?

It has worked for retailers and leisure operators, so what can caterers learn from the current wave of co-branding to improve a coffee offering? Ian Boughton reports

As soon as the high-street coffee-bar phenomenon took hold it was clear that operators in other sectors would look for a piece of the coffee action. And sure enough, in-house coffee bars have been cropping up in a variety of places, from leisure centres to department stores.

Their first, and easiest, way in was through a licensing agreement, by which a high-street café opened up within their premises.

More recently, a new variation has taken hold - a co-branding approach, in which the host forms a partnership, not with a branded café operator, but with a branded coffee product manufacturer.

This is a subtle difference. The success of the big-brand high-street cafés has been based on ambience, and it has been the "café experience" that other retailers have tried to copy. However, the new idea is that, by turning to a famous-name coffee, the host both flags up a clear quality message and reasserts its management of the selling operation under its roof.

The concept has already been taken to unusual lengths. In the case of recent work between Debenhams and Douwe Egberts, for example, the host retailer has even been willing to let its own identity take second billing to that of the coffee brand at certain points in the store.

"It is Debenhams who have led this slightly out-of-the-box approach," says Douwe Egberts' marketing director, Paul Freeman. "Most stores either promote own-brand or partner with a retail brand, rather than a product brand. It was when we went to them with research that said they could take on the high-street bars that they realised they were on to something.

"They began to promote our name right at the front door as one way of drawing people inside. Given the continuing popularity of franchised operations by the big café chains, this is out of the ordinary - but it is a genuinely new and fresh approach to the idea of an in-storé cafe instead of the obvious, well-trodden route."

Freeman explains: "It signifies a powerful third way to operate an in-house coffee bar - forge a high-profile partnership with a respectable coffee brand, use their coffee know-how and brand strength, but run and control the operation yourself."

This has bottom-line implications, says Mark Kent, senior brand development manager at Debenhams. He says: "We have created an in-store coffee shop that challenges the high-street names, and we can achieve a much higher profit per square foot than we were offered by the major café chains, through using the resources and cost base that are currently in our business."

Elevated coffee

Much the same concept is now beginning to crop up in the pub sector, where JD Wetherspoon has entered an agreement with Lavazza coffee. Without actually creating a café environment, the pub chain has deliberately elevated coffee from the secondary status it holds in many pubs, and promoted its partner brand enthusiastically.

"We are now the most-featured brand on a Wetherspoon menu," observes Barry Kither, sales and marketing director at Lavazza. "We have never seen a group customer use our brand so extensively. But Wetherspoon is not promoting this to do the coffee trade a favour. They know exactly what they want - they're going up against Starbucks and Costa, and encouraging greater use of what can be lonely daytime spaces in pubs."

He adds: "To do this, they knew they had to overcome the traditional image of pub coffee. People didn't see a pub as a place for good coffee, so Wetherspoon's strategy was to establish the credibility of their coffee immediately, the moment people saw it."

The empty-space strategy is reckoned to have worked - Lavazza is now served in 650 sites, and the people sitting there in the early or middle morning drinking coffee are new customers who would not otherwise have been in a pub at that time of day.

There is a similar project at Greene King, where Angus McKenzie, managing director of Metropolitan Coffee, is working on a co-branding project featuring his Segafredo coffee. The secret of such co-operation, he says, is for both sides to open up completely about their aims and what they can bring.

"Greene King decided on a slightly different tactic," he explains. "Instead of, ‘We've got great coffee', which is what every operator says, they went for the message of, ‘This is the place for a coffee social occasion'.

"To make an idea like this work, you need a brand partner who will do more than clutter up your bar with table-talkers. This kind of mutual work requires the honesty of a partner brand willing to discuss the truth about each side's skills and produce really new ways to develop business."

He adds: "Co-branding also needs a partner with whom you can hammer out a realistic deal right from the start."

In the case of Segafredo and Greene King, such open strategic talks produced one tactic which sounds trite, but worked. "Introducing two sizes of crockery does not sound revolutionary," acknowledges McKenzie. "However, there is currently polarisation of price points in the beverage market. There is growth in the pound-a-cup sector, but Greene King were also able to discuss with us how they saw growth in the £1.80 bracket, and even the possibility of speciality drinks at £3.75."

New prices

He adds: "The important thing is to know where you are and discuss openly with your partner the sector you're aiming at. This allowed us to work on new sizes and new prices, which combined to give a very strong result and growth which is continuing at around 35%."

In August, all 400 in-store cafés in Tesco supermarkets switched to Kenco Sustainable Development coffee, blended from beans certified by the Rainforest Alliance and sold under the line: "Great coffee that makes a difference."

Kenco's contribution to the co-branding was to help prepare a comprehensive briefing for all café operators, outlining the reasons why the change was being made, the background to the Rainforest Alliance, and what point of sale material should be displayed for the launch. Once this was in place, Kenco took responsibility for quality assurance in the cafés.

Nash says: "We visit each store to conduct audits, which involve equipment cleanliness, cup fill, appearance of the drink, and taste, among other items. If any store falls below standards, we have an action plan to put into place. Each year over 2,000 store audits will be carried out and 1,000 staff trained."

Not enough

Kenco's insistence on audits recognises that, while the concept of co-branding is clear, a simple marriage of brands is not enough. The partnership survives on drink quality.

Every coffee supplier in the world repeats the mantra of "training and quality" and, in a co-branding partnership, both sides have to be clear what this means.

Curiously, Tesco did not turn entirely away from the branded café option. "Tesco is rolling out 70 Starbucks and Costas in their estate where they feel the consumer profile is right," says Nash. "They recognise that high-street brands can only work in certain stores."

Essentially, there is a paradox of image. The image of the high-street coffee chains is deliberately hip and cool by contrast, the customers of other outlets do not want "espresso with attitude", they simply want "a nice cup of coffee".

The challenge is to deliver a modern coffee experience in a way that retains all customers, and the solution is found partly through attention to the menu, and partly in training staff to develop the right attitude.

"We have made every effort not to alienate our loyal customer base," says Kent. "The key is in training and motivating the team towards customer satisfaction. Without this, you can have the best product around and still be looking at empty seats."

It is in satisfying customers that a co-branding partner will prove itself in training support, says Kither.

He explains: "We put in a vast amount of training for thousands of Wetherspoon people. We explained to them that most customers who ask for a coffee in a pub have experience of going into a Starbucks or a Costa.

"This means you have to make a decision: if you're going to offer a cappuccino, it has to be as good as the high street if you can't handle cappuccino, then make a positive decision to do something else very well - concentrate on promoting a really excellent fresh filter coffee menu.

"We showed that, even in pubs which try to sell coffee cheap, customers still expect it to be good. It is now proven that a price point is not an exemption from quality."

This kind of training from a brand partner, says Kither, helps pub staff get inside the concept of coffee and understand how to work with it and sell it.

"At JD Wetherspoon," he says, "the results vary from pub to pub, but I have met their star performers who are working in pubs now doing 2,000 to 3,000 cups of coffee a week. For a Costa that's just a ‘reasonable' figure, but for a pub it's unbelievable."

New prospects

All of this is just the first step, say the advocates of product-based co-branding. Throughout the catering sector, new prospects are opening up.

"What we have done with Debenhams is unique to them," says Freeman, "but where there is more potential for the general concept, and where there is real interest, is in university catering. Where the next step lies, and where we will see the classic third step developing, is in hotels."

McKenzie agrees that both are exciting prospects, and he sees the hotel sector as a parallel to the situation he found in pub coffee.

"In the middle-market hotel environment," he says, "they are using many deals imported from their American owners, which is why you see Starbucks there. What has already begun to happen is that hotels are buying an unbranded coffee for back-of-house work, and a coffee-bar brand for front of house. Now there is a great deal of potential for product branding being the better option for front-of-house hotel work, where there is a growing realisation that you are often paying £5 for a coffee, which is pretty bad."

He continues: "In the contract catering sector, we are already increasingly being asked how they can provide the branded kind of experience without exposing themselves to the commercialisation of café brands who want to tell them how to run their business, and are imposing great burdens of administration.

"The nub is this: five years ago, to have a Costa or Starbucks in your premises was considered pretty special and unique to be different today, operators want to put forward the message that they are just as serious about coffee as the high-street chains, but not give away their identity to someone who's going to tell them how to run their business."

McKenzie concludes: "For these people, we now have a very interesting toolbox of coâ€'branding ideas. The secret now is to open it up and see what's in there for you."

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