No time to build a brand name? Maybe you can lease one
Like other company owners looking for new sources of sales growth, Donald Tober and Steve Odell first had to discover what business their company was really in. But the discovery did them no good until they came up with one other insight. They call it brand leasing.
Their insight came none too soon, because New York City-based Sugar Foods Corp., owned jointly by Tober and Odell, held all the market share it was likely to with the product that had been its mainstay for more than 30 years. Where, they wondered, was the new growth going to come from?
Sugar Foods sells Sweet 'n Low, the artificial sweetener in the pink paper packets. It combines the ingredients, some of which come from Brooklyn's Cumberland Packing Corp., packages the mixture, and distributes it to the food-service industry. Sugar Foods splits the retail Sweet 'n Low market with Cumberland.
In food service, where most of Sugar Foods' sales are, Tober estimates that 86% of the outlets already use Sweet 'n Low. The other products the company sells -- packets of Sugar in the Raw brand sugar and tiny containers of N' Joy brand nondairy creamer -- accounted for less than 15% of sales and had only limited growth potential.
It wasn't until Odell saw chocolate syrup sitting next to white milk in the grocery store that something in his mind was triggered. "Aha," he thought, "we sell stuff that goes with . . ." as in, for instance, iced tea and lemon. In the food-service business, "goes with" translates to "portion control." Aha, again! He decided they weren't in the sweetener business, after all. They were specialists in individual portion control for the food-service industry. They knew how to fill and distribute packets.
Excellent. What else could they put in packets to sell in the food-service market? Besides lemon juice there was mustard, relish, mayonnaise, salad dressing -- practically any condiment you could think of. What a great . . . but hold on. Not so fast.
Tober, who took Sugar Foods over from his father in 1958, had been working for more than 30 years to make Sweet 'n Low the brand name in sugar substitutes. Did he and Odell, who joined the company in 1969, want to spend the next 30 years trying to build brand recognition for their own lemon juice? No. Did they need a brand name? Maybe not. There is a market for generic and house-brand products, provided you sell them cheaply enough. That's what they were doing with N' Joy. But wouldn't it be better if they did have a brand? "Each brand out there," says Tober, "represents hundreds of millions of dollars spent over years." Sugar Foods, whose annual sales in 1986, when all this was going on, were about $58 million,couldn't afford that.
Besides, Sugar Foods was really a specialist in packaging and in distribution. Tober and Odell knew little about the consumer research, advertising, marketing, and promotion that goes into brand development. If Sugar Foods didn't have the money to build or to buy a brand, Tober and Odell asked themselves, why couldn't they lease one? Why not find brand marketers interested in taking advantage of what Sugar Foods already knew how to do?
Their first stop was Sunkist Growers Inc., where they struck a deal to put Sunkist brand lemon juice in portion-control packets. Later they signed up Vlasic relish, French's mustard, Tabasco sauce, Newman's Own salad dressing, and Stash tea.
A typical contract with the brand owner runs 10 years, with options to renew. There's no up-front fee. Sugar Foods pays for the product it uses, plus a licensing or royalty fee that runs between 3% and 5% of gross dollar sales. The manufacturers are not interested in the money they'll make selling bulk product, says Tober. "They're looking for the exposure." The contract usually requires Sugar Foods to hit volume projections that start out small -- say, 100 million packets in the first year -- and rise to maybe 500 million by year five. Sugar Foods usually pays the manufacturer a minimum licensing fee whether it makes its projections or not.
There's an incentive for the food-service industry -- the restaurants and take-out providers -- to pay a bit more for the top-brand products, says Tober. If customers see brand-quality products on the table or in their sacks, he says, they can infer something about the quality of ingredients being used in the kitchen as well.
Tober and Odell have been creative in other areas where leading brands already distribute portion-control packets to the food-service industry. Smuckers, the leading jam and jelly brand, for instance, is already in the business. So Sugar Foods is trying an end run by going to the companies with leading flavor names to see if they can work together developing jelly products.
Sugar Foods has even gotten into creative distribution. It persuaded The McIlhenny Co., which makes Tabasco sauce, to put its name on packets of crushed red peppers. Pizza parlors can put them on the table or throw in a few with the takeout. Now, Tober is thinking that frozen-pizza makers might want to include the packets in their retail packages -- a whole new way of getting McIlhenny peppers into consumers' hands.
Brand licensing hasn't pushed Sugar Foods's growth up to warp speed. That isn't what the partners wanted. "No home runs," says Tober. "We just like to grind it out: 10% to 15% growth per year." This year that rate of growth should bring sales up to about $150 million, from $125 million last year. And plenty of room for expansion remains. They could package other branded products and open other distribution routes.
But Tober is wary of becoming too creative. If the company strays too far from what it knows -- and from how its customers know it -- everyone, he says, gets confused. "We begin to look like peddlers. 'Oh, do you do greeting cards and shoelaces, too?' It's better to stay focused. Someone once told me if you can't write it on the back of a business card, you don't have a good business idea. 'We're Sugar Foods, the packet people. We put brands in packets.' "
You can do it, too
The whole idea behind brand leasing is to get someone else's name on a product or service you know how to produce, package, or market. They've got the recognition, but chances are your company, whether it's in the portion-control, computer software, or any other business, has strengths, too.
* Decide exactly what it is your company knows how to do. Sugar Foods Corp. had two strengths: its packaging capabilities and a good reputation in food-service distribution.
* Figure out how to apply those strengths to add value to another company's product or service. Sugar Foods offers brand-name owners consumer exposure plus easy entry to the food-service market.
* Polish your reputation, then trade on it. Owners spend small fortunes building a brand name. They won't trust it to someone who might tarnish it. "If we didn't have our reputation with Sweet 'n Low," says Donald Tober, "I don't think we'd have gotten these other brands."
* Go for the best. You'll pay about the same for the top brand as for number three, so you might as well lease number one. Besides, just one low-quality product in your line reflects badly on the others.
* Build a full line. Tober finds that every time he adds a new product to his line, sales of his other products climb as well. Food-service customers are more impressed by a full line than a spotty one, and they'd rather deal with one supplier.