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Brand Licensing - Incremental or transformational growth?
Over at FoodDive, Megan Poinski published an article about how Coronavirus ignited Kraft-Heinz’s interest in brand licensing.
“Many consumers have returned to some of those pantry staples that we’ve had in our portfolio during this pandemic, and it’s reminding them of their love for a lot of the Kraft Heinz brands,” Christopher Urban, Kraft Heinz’s vice president of global strategic capabilities, said at a virtual licensing conference on Monday. “And we see this in our data. We’ve seen significant increases in household penetration across many of our brands over the past few months. In some cases on some of the brands, we are seeing record high numbers. And I think this increase in household penetration just makes the brands even more relevant to the consumer.”
Urban spoke at the Licensing Week Virtual conference about the opportunities the food company has available and is pursuing, many through the agreement signed last year with Brand Central. Kraft Heinz, which owns scores of well-known and globally beloved brands, entered the Brand Central agreement to transform its megabrands Heinz, Kool-Aid, Planters, Jet-Puffed, Oscar Meyer, Philadelphia, Kraft Macaroni and Cheese and Velveeta into lifestyle brands.
So here’s Kraft’s logic as I see it:
A global pandemic led to record sales for almost every CPG company
Record sales reintroduced old brands to new consumers
They are going to extend the momentum through brand licensing deals
Consider me skeptical. Given the realities of Kraft-Heinz’s business, this seems to be at best an incremental revenue driver.
How Brand Licensing Works
By 1995 M&M’s had lost their mojo. After a generation in the business, sales of the hard-coated candy were flat. The brand was at risk of becoming a commodity. “They’d become just candy.” Susan Credle, a creative director at BBDO, told Business Insider, “An aisle store candy brand versus an icon brand.”
With help from marketing firm BBDO, Mars Inc. transformed the brand into one of the most beloved in America.
From Business Insider:
BBDO’s idea: Take the colors of the candies in the bag and develop each into a character to make a comedic ensemble.
Credle describes M&M’s as the “court jester” brand — when the king is getting slaughtered, the jester comes in to lift them up.
Along came Red (the sarcastic one,) Yellow (the simple one,) Blue (the cool one,) and Green (the sexy one) — and later, Brown and Orange, too.
The characters debuted at the Super Bowl and were an instant sensation. Today, over twenty years later, M&M’s are still the best-selling chocolate brand in America. Perhaps more importantly, the company leveraged the characters to successfully evolve into a brand licensing platform. People didn’t just want to buy chocolate candies, they wanted to associate with M&M’s themselves. They wanted t-shirts, notebooks, stickers.
Long-term licensing partners include apparel, housewares and plush provider ERE; novelty and candy dispenser maker CandyRific; electronic accessory company Maxell; calendar maker Trends International LLC; travel accessory provider EB Brands and watchmaker MZ Berger. MRG in the past year added apparel maker Mad Engine Inc. and cycling jersey manufacturer Brainstorm Gear to its list of licensees.
This was transformational growth. Apparel, housewares, electronic products–all by a candy company. Kraft-Heinz is betting that it can capture similar enthusiasm with Oscar Meyer, Kool-Aid or any of their legacy brands.
Physical Stores propelled M&M’s brand licensing success
One of the reasons I am skeptical of Kraft-Heinz is that under 3G’s management, the company has effectively no track record of building brands. In fact, they have a strong track record of using zero-based-budgeting to drive efficiencies—which can often destroy a legacy brand’s value. M&M’s transition from a branded candy to a lifestyle brand wasn’t cheap.
In fact, it took one big, bold, and expensive bet—a physical retail store to truly cement the change. A branded retail store is a place where a brand’s image turns into a real experience. Scott Galloway calls it a “temple to the brand.”
Patrick McIntyre, Director of Global Retail at Mars, described the strategy at Insider Trends:
Where brands come to life is advertising either in a TV commercial, in a print ad, or in some interaction that a consumer has with the brand. That’s a snapshot in time. It’s one moment and then it’s over, and then you’re on to the next thing. I think many brands, and us in particular, ealized a long time ago is the impact of being able to amplify those brand attributes in an experience where someone can actually be immersed fully within that brand. That’s what we started 20 years ago with our first M&M’s World Store in Las Vegas – a very famous tourist location. We created a four-floor 28,000-square foot store that was completely and totally dedicated to M&M’s.
Today, Mars Inc. has seven full M&M branded retail stores. The London location alone drives 5.3 million visitors a year. The company has an additional store planned at perhaps the most exceptional branded merchandise company in the world—Disney World.
Kraft-Heinz’s approach could drive some incremental revenue
Given that Kraft-Heinz lacks the characters of M&M and it a full-service retail store seems impractical—especially given COVID-19 realities—I think the safest bet is that the brand licensing initiative is used as a supplement to its dwindling research and development arm (Which I’ve covered in detail here).