When brands tango

It takes two to tango. At least in the roller-coaster world of big brands.

Recently, Nestle and Starbucks entered into an alliance where the Swiss food and beverage (F&B) company pledged to pay Starbucks $7.15 billion for exclusive rights to sell the US-based chain’s coffees and teas around the world. This collaboration is just one of the many where two brands have tried to draw in strength from each other’s muscle.

Experts say such retail and distribution alliances are at best symbiotic, where each brand complements the other and stands to gain from the other’s assets and scales. “These collaborations are attempts to plug a weakness in one’s shield,” point out brand experts.

McDonald’s and Coca-Cola were perhaps two of the earliest brands who leveraged each other’s strengths way back in 1955 and have been selling cola packaged with various burger-fries combos.

According to Kaustav Das, CEO of integrated agency Ralph & Das, these are “classic marriages of convenience. They work well when an alliance is able to contain or overcome a threat or a weakness for either. It’s a bit like ‘you scratch my back, I scratch yours’, or ‘our combined expertise would be hands down winner’.”

In India, home-grown brands like Patanjali and the Future Group have attempted to ride on each other’s strengths, with the latter making the former’s fast moving consumer goods (FMCG) products available at its Big Bazaar outlets.

On the other hand, US fast-food chain Carl’s Jr. and Kingfisher have been attempting a cross-continental partnership. They have inked an arrangement to sell beer alongside burgers at Carl’s Jr. outlets in India.

According to Harminder Sahni, founder and managing director, Wazir Advisors, the two brands involved in retail or distribution partnerships stand to gain in terms of enhanced brand image, accelerated presence in different markets and in terms of profits and growth.

In the Nestle-Starbucks case, for example, experts say although Nestle has been dominating coffee with its Nescafe and Nespresso, the brand has not really resonated with millennials, despite its decades-old legacy. On the other hand, Starbucks is perceived as that ‘’cool contemporary brand of premium coffee and beverages’’, and an ‘’uber chic hangout’’, both of which strike a chord with the newer generations, feel experts.

“Add to this the fact that JAB Holding Co with its acquisition of brands like Keurig Green Mountain and Peets has been snapping at Nestlé’s heels,” says Das.

According to Devangshu Dutta from consulting firm Third Eyesight, although coffee consumption has been growing worldwide, Nestle has lost mindshare and market share to competitors, as consumers are keen to look at more premium products and more varied offerings. “So Nestlé’s deal with Starbucks gives it a leg up, particularly in the lucrative US market.”

On the other hand, Starbucks lacks the mass distribution muscle of brands such as Nestle, adds Dutta. “Starbucks gets to reach millions of points of sales that it cannot on its own, or might take years to create those networks. Since Nestle manages the networks quite efficiently, that benefit to comes to Starbucks,” says Sahni.

But alliances between brands in the past have (in)famously been called off.

Experts point out that an earlier deal between Starbucks and Kraft broke since Starbucks accused Kraft of multiple material breaches of contract, including mismanaging the brand. Closer home, alliances like Group Danone and Britannia were cut short over issues pertaining to the intellectual property rights of the Tiger biscuit brand, and Marico and Indo Nissin Foods had parted ways “as Indo Nissin had reached critical turnover mass with Top Ramen (noodles)”, say experts.

“There remains the unpleasant truth that both brands cannot be equal gainers in the long term. And that is when the alliance is questioned by the lesser gainer,” says Das, who feels that such alliances survive if the two brands agree on who will be in the driver’s seat when it comes to the brand and the business’s point of view. “Challenges lie in the culture and belief systems. Like in this recent case, Nestlé is geared for building volume businesses, while Starbucks is more interested in creating a Starbucks culture and lifestyle.” To create successful brand alliances, businesses need to look at the similarity of culture and core essence and not what each gain at a transactional level. “If the two brand cultures do not have a synergy, it is best not to attempt an alliance. Brands should be sure to agree on every milestone right down to the ultimate buyout by either one. Or at what point will the two-part away amicably,” says Das.

RUB-OFF EFFECT

• Such alliances are at best symbiotic, where each brand complements the other, say experts
   
• But partnerships between brands in the past have (in)famously been called off