Multiple Brands

The Economist business section was on good form last week. A great article about partnerships was built with humour around the autobiography of Keith Richards. But I was also interested in another article, about hotel chains.

The article focused on the Accor group of France, owners of many brands from the high end Sofitel, through Mercure and Ibis down to the no frills Formule 1. Most of the writing was about a change of CEO, and the wisdom of owning versus franchising of hotels. This was a debate we often had at Shell and has become common among owners of brands built around locations – it is interesting that the new CEO of Accor came from McDonalds. It is always tempting to shift outlets from the balance sheet, since this immediately creates cash and return on investment. However, these are mainly one-off effects and the downside is loss of control of the brand. I prefer companies who hold on to at least a share of core assets, such as Accor.

Not discussed in the article was a second issue, that of having a stable of brands with different customer offers. In fast moving consumer goods, this is common practice – witness Proctor and Gamble or Unilever, but also players like Diageo. These own many excellent brands and focus their marketing on these rather than the parent. Indeed not many people know which detergents are Proctor and which ones Unilever. Occasionally, these giants even pit brands with very similar propositions against each other.

For retailers built around outlets, however, the practice is much rarer. My theory as to why this is starts from the history of the companies and their resulting culture. In Tesco, or McDonalds, or even Shell, strong internal functions include property management and operational control, whereas brand management (of the offer rather than the store) comes later in evolution. By this time, the owners brand is so strong, and so supported by senior management, that the arriving consumer marketers are forced to use the umbrella for everything. The disadvantages are that the outlets tend to be so diverse that creating a distinctive image becomes difficult, and it also potentially hampers diversification (as opportunities must fit the dominant brand identity). For poor players, this can be argued as a good thing of course, making costly errors less likely.

Tesco and others have a neat partial solution of using sub brands. So we have Tesco extra, Tesco metro, Tesco express and so on. This allows the strong core brand to spread to new markets, but they have to be careful not to stretch too far – so for example pricing in convenience stores has to walk a tightrope – high enough to make a margin with the higher operating costs and rents, yet not so high as to damage the reputation of the core brand.

I tried to start this debate in Shell a couple of times. We had reached a situation where Shell retained a consistent good reputation as a fuel, but not always as an outlet. Furthermore, the need started to arise for very different types of outlet to compete, ranging from highway sites to outlets with fancy stores to local low cost operations. Then, in some markets, came the unmanned station. In these, more or less the entire staff cost and a substantial part of the land and maintenance could be eliminated altogether, at the cost of sacrificing part of the offer and the income from the shop. Where shop potential is low, land tight, IT well established, and staff costs high, this is an attractive proposition.

I had seen unmanned station work (for the competition) in Scandinavia and saw massive potential in other European markets (for us). But I ran into several internal blockers. The shop function at the time believed they could do good business anywhere. Dealers wanted to stop unmanned growth, since it threatened their livelihood. The branding department could not see beyond the Shell brand, with its large budget for them! Unmanned had started to gain a toehold, but was often seen in Shell as a low cost solution only to keep poorly located outlets open. As an aggressive, low price high volume proposition, Shell was not ready.

Part of this became a branding question. Aggressive unmanned sites have to offer a discount to grow scale. Yet how could we do this under the Shell brand, which had at best a neutral reputation for price? I argued the radical solution of using Shell as the fuel brand only, while using a range of different brands for the sites. So you could have “highway”, “complete”, “local”, and “unmanned”, all selling clearly branded Shell fuel. The Shell brand would be on the pole sign and the pumps, a bit like an oil brand would be normally.

We would then take the next logical step of having distinct organisations for the different outlet brands, in principle competing with each other, but with some rules to prevent value destruction. That way an organisation could develop with the right aggressive Easyjet type) culture for the unmanned, and so on. As well as sharing Shell fuel, the organisations could also share services like pump maintenance to leverage scale.

This was one of the most radical ideas I had in Shell, and it still rankles with me that I didn’t manage to make progress with it, for I’m convinced it would have been a winner. Who knows, perhaps it still could be? I remember one night trying to think of parallels in other industries, as a way of supporting my argument. The best I could do were people using sub-brands, which for me would not be radical enough for us.

Then some months later, and too late really, I had a brainwave and found my case study. Accor. Stupid really, I must have slept 20 nights in Accor hotels while trying and failing to come up with me example, and it was right in front of me all the time. As a result, since then I’ve always followed and admired Accor. The growth of Formule 1 is an excellent case study, and now has many imitators. It seems to me that this company creates exactly the business model to utilise multiple brands to appeal to many consumer segments.

Just like we could have done in Shell.