Licensed to Sell

November 10, 2008
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Since this summer, Safeway stores have been adorning their new Eating Right Kids food and beverage line with Bugs Bunny and his Looney Tunes friends, courtesy of a new partnership with Warner Bros. Entertainment. With this deal, Safeway joined the growing ranks of retailers licensing brands or characters and using celebrity endorsements for their private label lines.

“More retailers are attempting to use value-added endorsements to make products attractive to consumers,” says Brian Sharoff, president of the New York-based Private Label Manufacturers Association.

In 2007, the food and beverage industry represented $434.3 million of the $5.9 billion in licensing revenue, according to The International Licensing Industry Merchandisers’ Association’s (LIMA) “2008 Licensing Industry Survey.” It’s estimated that retailer-owned brands featuring celebrities, animated characters and other licensed properties constitute more than 20 percent of supermarket unit sales.

These new direct-to-licensing agreements appear to be a natural evolution for retailers’ private label lines, which keep trending upward to gourmet, organic and other high-quality alternatives. Retailers can use licenses to cover specialized items or needs, create mass appeal or distinguish an entire category through traditional licensing, direct-to-retail licensing or brand extension agreements. It’s up to retailers to pick the right approach for their customers.

“Licensing can and should be a part of the private label world,” says Martin Brochstein, senior vice president of industry relations and information for New York-based LIMA, noting that retailers and licensors have a lot of common ground but need more communication.

“The two worlds of licensing and private label can be closely aligned in that stores and suppliers have moved beyond the very generic possibilities of store brands,” he says. “They are not just as good as other products, but are now better than them - or even brands in their own right. Licensing can provide a shortcut to that distinction.” 

Bring Buzz Back to the Shelf

Today, health-conscious moms can select kid-friendly products from Kroger’s Disney Magic Selections program, featuring Mickey Mouse and friends; from Meijer’s Garfield-endorsed line of snacks; and from Safeway’s Eating Right Kids line of more than 100 items.

A walk through a Target store shows home, houseware and apparel lines created with famous designers such as Michael Graves, Sami Hayek, Liz Lange and Isaac Mizrahi. And this fall, Wal-Mart launched a new home line from Better Homes & Gardens magazine featuring more than 550 coordinated branded items. Even CVS/pharmacy carries a baby care line licensed from Playskool and exclusive beauty lines from celebrity stylists Cristophe of Beverly Hills and Ellin LaVar.

In fact, retailers ranging from Wal-Mart and Walgreens to Costco and Kmart have begun using well-known interior designers, sports figures, chefs and/or animated characters to upgrade their store brand products, packaging and presentation.

Indeed, most of their collaborations involve direct-to-retail licensing, in which the retailers are the licensees and sellers of the brand. In essence, retailers are working with the licensor to develop and design new products available only in their stores. This new arrangement differs from traditional licensing agreements in which a manufacturer produces the branded or endorsed product. Either licensing format eventually could lead to new brand extensions.

For retailers and private label manufacturers, licensing opens up a number of doors for them and the licensors, says Nell Roney, president of the Atlanta-based Nancy Bailey & Associates Inc., a licensing agency that represents Mr. Clean, Tide, Ocean Spray, Febreze and USA TODAY, among others.

Licensing agreements can provide immediate recognition and impressions for a particular product, authenticity and credibility with certain health claims, an expanded offering within the category and additional touch points for consumers to experience a beloved brand.

In addition, these items increase manufacturer and retailer margins because they can command a higher price, bring buzz or news to a category - and the store brand - and provide manufacturers with additional products to sell to their buyer, maximizing their manufacturing capabilities.

“Brands help speed up shoppers’ purchase decisions because they have an implied warranty; consumers expect them to perform well because they have had a good experience with the product before,” says Linda Morgenstern, executive vice president of Nancy Bailey & Associates.

License the right brand

By licensing the right brand for their market, retailers can guarantee consumer awareness, trial and loyalty, saving potentially tens of millions of dollars in advertising and promotions in a tight economy.

“But to choose the wrong celebrity or endorsement for your market would be a disaster,” Sharoff says. “Mickey Mouse is fine for children and moms, for example, but not for senior citizens. It’s not rocket science.”

Strategically, the right license or endorsement can bring a unique selling proposition to a retailer’s store brands - one that gives shoppers a reason to choose that retailer’s store over the competition on repeat visits.

“This not only leads to incremental sales of the store brand, but increased trips and basket size per trip, which can make all the difference in a tight economy for a retailer,” says Michelle Alfandari, president of MODA International Marketing, Inc., a New York-based licensing agency that represents clients such as The Henry Ford and its brands Greenfield Village and Henry’s Garage; The New York Times, Audiovox and Champion athletic wear.

Alfandari points to Kroger’s Old Yeller pet food line as a successful example of brand positioning and selection. Kroger launched its Old Yeller line to compete with Wal-Mart’s hugely successful Ol’ Roy line, which even dominates national brands sold everywhere. Since its launch, Old Yeller has elevated the perceived quality of the Kroger store brand through consumers’ trust of and emotional connection to Old Yeller, while offering a price proposition equal to that of Wal-Mart’s Ol’ Roy.

“Old Yeller not only sells more store label pet food for Kroger, but it drives increased trips to the pet aisle and to the store, while taking business away from Wal-Mart,” she says. “That is success by most retail measures.”

John Fraser, MODA’s senior vice president, cautions retailers to understand the difference between a hot licensed brand and an effective licensed brand. Hot licensed brands will burn brightly but fade before they yield enough value in terms of product introductions.

“In fact, misapplication or overreaching of a licensed brand in poorly selected categories and product will lead to weak sales,” he says.

Effective licensed brands, on the other hand, connect with desired consumers in the right categories for the long-term, allowing retailers to maximize their yield from these efforts.

“Dynamic lifestyle brands have strong emotional connections with consumers, and smart, successful licensing helps to drive sales of core product and licensed product,” says Debra Joester, president and co-founder of New York-based The Joester Loria Group, a licensing agency that represents brands such as Care Bears, Discovery Communications, Jeep and Pepsi North America.

The agency works with a broad cross-section of retailers in different channels of distribution, including Babies ‘R Us, Pet Smart and Target Corp. However, Joester notes that each of her licensing programs provides product development assets, including seasonal graphics; a cohesive branding system; retail and marketing support; trade advertising; retail promotions; consumer outreach; and consumer research.

“The research and other tools provided have proven to be very helpful in securing retail support and confidence,” she says.

Align brand, licensing strategy

Next, the licensing strategy has to align with the brand’s message and attributes, support the brand and use the brand’s strength, notes Francesca Pascolini, executive director of marketing and retail development for Global Icons, a Los Angeles-based licensing agency that represents clients such as Hershey’s, Honda, Mrs. Fields and Cold Stone Creamery.

“The first step we take when looking at a brand is [to] engulf ourselves in its essence, target market and equities,” she says.

Then, the agency can target the best retailers to partner with via traditional or direct-to-retail licensing agreements.

For example, the agency recently helped facilitate a Build-A-Bear workshop program, featuring a branded cake pan and decorating kits, at Williams-Sonoma. It launches this holiday season. In this case, the retailer approached Global Icons about working with one of its clients to tap into new markets.

The agency worked directly with Williams-Sonoma’s merchandising and product planning teams on the Build-A-Bear cake pan and kit designs, packaging and promotions such as their holiday catalog and technique cooking classes. Global Icons also helped facilitate cross-promotional activities between the retailer and its client, including in-store and online support and e-newsletters.

“The retailer has more control, and it’s an exclusive piece for them,” Pascolini says.

If a retailer doesn’t have a prior working relationship with a manufacturer, the licensing agency might be able to select one and facilitate between the manufacturer and licensor. Roney notes that her agency looks for manufacturers that provide excellent product development, management and marketing of licensed products, and that see licensing as an opportunity to build their own businesses.

“The trick is finding the right manufacturer who has not only the manufacturing capabilities and retail relationships required to license a brand, but also has the interest and resources to properly market and promote the branded products,” Roney says.

One size doesn't fit all

Even with direct-to-retail agreements, retail licensing partnerships can come in many different shapes and sizes. In fact, The Licensing Co. currently is working on two very different programs with retailers, notes Angela Farrugia, its New York-based group managing director. For its client, Jim Beam, the licensing agency currently is having conversations with retailers about using the Kentucky bourbon flavors to create rubs, marinades and barbeque sauces for retailers’ pre-cut or pre-packaged uncooked meats.  

“This partnership would create excitement in a commodity-driven area,” Farrugia says.

However, with its Jelly Belly client, The Licensing Co. is working with many retailers to add the candy’s top 10 flavors to the fresh bakery aisle - in particular, to muffins and cupcakes.

The research and development process can be approached from the opposite direction as well. When The Licensing Co. works with stores such as Wal-Mart, the agency is tasked with helping to find brands that will appeal to specific consumer demographics.

“A store department may say, ‘there is a gap in our product mix,’ so we help them target it; teenagers, for example,” Farrugia says.

Another strategy is to mix co-branding with licensing, says Todd Donaldson, vice president of sales for Louisville, Ky.-based IMC Licensing, which represents companies such as Dole, Kraft, Wrigley and Planters. He points out that Costco Wholesale Corp.’s house brand, Kirkland Signature, sometimes is co-branded with other lines such as Martha Stewart.

This spring, Safeway took licensing one step further, Donaldson points out, with its Better Living Brands Alliance. This unique partnership of manufacturing, marketing and distribution partners was created to expand Safeway’s O Organics and Eating Right lines to other national retailers. In essence, the alliance will function as brand licensees and provide a supply chain network, while EMAK Worldwide will communicate with consumers and Crossmark will work with retailers.

“Private label lines don’t have to exist as an exclusive store brand,” notes Cara Bernosky, president and co-founder of IMC Licensing. 

Indeed, sometimes the store can even be the brand. Last fall, an airport retailer licensed the USA TODAY brand to rename its stores as the USA TODAY Travel Zone, says Morgenstern. Shops are opening this fall at LaGuardia Airport, Indianapolis International Airport and Detroit Metropolitan Wayne County Airport. The stores offer USA TODAY-branded news, gifts, travel accessories, reading glasses and books.

“Airport retailers are looking for differentiation and variety as well,” Morgenstern says. “So, the model has legs.”

According to MODA’s Alfandari, retailers increasingly will embrace exclusive licensed partnerships with brands that can generate consumer excitement and increase sales because they possess a unique proposition their shoppers care about. 

Sidebar: Children's shows reinforce licensing

Kid-friendly private label lines are a bit of a bellwether for retail licensing agreements, as new trends frequently are launched in this area, and they usually are well-suited to innovation. Plus, products featuring entertainment characters lend themselves easily to cross-promotions.

Today, brand management companies that focus on children’s entertainment even are supporting their licensed products through children’s television shows.

“When we match up one of our brands with a category, we’re able to supply our retail partner with television programming, design services and Web support,” says Glenn Pecoraro, vice president of retail development for New York-based 4Kids Entertainment, which represents properties such as Cabbage Patch Kids, Jim Henson Designs and Teenage Mutant Ninja Turtles.

“Every Saturday morning, we’re airing nine hours of programming on two networks.”

Pecoraro notes that as long as there is entertainment, licensing will be a factor in children’s products.

“New TV shows and movies are always spawning visual imagery and a following among children, teens and adults,” he says.

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