Research firm: Brand recognition drives success for major chains

by Gregg Cebrzynski

Reprinted with the permission of Nation's Restaurant News

Stamford, Conn. - Starbuck's, McDonald's and Wendy's are foodservice leaders not only by virtue of their size and their sales, but because consumers recognize their corporate identities as readily as their products, according to officials at CoreBrand, a consulting firm here that measures brand equity and assesses the effectiveness and value of branding campaigns and their impact on financial performance.

Corporate branding efforts have an impact not only on a restaurant chain's sales, but on how much the brand contributes to the company's overall market capitalization, said James R. Gregory, chief executive of CoreBrand.

Corporate branding consists of all forms of communication that a company puts out, including advertising, public relations and packaging. CoreBrand calls it the "intentional declaration of who you are, what you believe and why your customers should put their faith in your products."

"In the case of Starbucks, they're not out there advertising very much. The corporate brand is in the culture of the business," Gregory said. "It created a culture and a business process that aligns with the corporate brand."

The same is true for Wendy's, he said.

"The corporate brand used to be all about Dave Thomas, and when he passed the brand image took a hit," Gregory said. "But there was enough structure there and the culture had been embedded enough that the corporate brand continues."

With some companies like McDonald's, he said, the corporate branding is reflected in the product branding, but corporate branding for all marketers goes much further. "Sometimes there are communications that are not intended and can be good or bad," Gregory said. "It can be the way a person smiles and says hello. It can be signage."

The results of CoreBrand's surveys are reported in a quarterly Directory of Brand Equity, which measures brand equity as a percentage of market capitalization and assigns a dollar value as a result of that percentage.

The report for the second quarter from April through June included 10 restaurant chains. Starbucks' brand equity as a percentage of overall market capitalization was 19.34 percent out of a possible 20 percent. Wendy's International was second at 18.91 percent, and McDonald's was third at 18.17 percent.

Those percentages are significant because, according to Gregory, while 80 percent of stock performance can be explained by such financial factors as cash flow, earnings and dividends, company size, expected cash flow, financial strength, and stock momentum, the other 20 percent usually is written off as "unexplained." He noted, however, that at least a portion of that is due to the corporate brand. The larger the percentage, the more brand equity affects financial performance. In the restaurant category, brand equity as a percentage of market capitalization was an average of 12.82 percent during the second quarter, according to the report. "The percentages for Starbucks, Wendy's and McDonald's are slightly higher than their first-quarter percentages." "The percentages mean all those brands are becoming stronger in contributing to the total market cap of the company," Gregory said.

Darden Restaurants Inc. had the lowest percentage at 0.37 percent.

The report is based on proprietary financial information, advertising spending and a brand-image survey of more than 12,000 decision makers from the top 20 percent of U.S. businesses.

The survey determines brand strength by measuring two types of image data: familiarity, which is a weighted percentage of respondents who know more than just the company name; and favorability, which rates overall reputation, perception of management and investment potential.

McDonald's had the highest familiarity rating during the second quarter, scoring 95 on a scale of 100. It's favorability rating was 72. Starbucks scored 88 in favorability to achieve the highest rating for that measure and was close to McDonald's in familiarity with a score of 90.

Bob Evans Farms ranked lowest in familiarity with a 41, and Ruby Tuesday scored the lowest in favorability with a 44. The brand-strength ratings and the company's financial data determine the percentage of market capitalization that is directly derived from the corporate brand. A dollar value is assigned after the percentage is calculated.

Starbucks' brand-equity dollar value, for example, is $5.23 billion. McDonald's value is $7.44 billion, and Wendy's value is $1.29 billion. Those values reflect stock market conditions, Gregory said, and they were lower than the first quarter because the market was down during the second quarter.

CoreBrand also differentiates corporate branding from corporate identity or image, which is the public?s perception of a company. It defines corporate branding as a business process that is planned, strategically focused and integrated throughout the company.

"When you build the brand, it's much more than advertising or communications," Gregory said. "Everyone is focused on product branding. But you should not ignore the corporate brand when you're doing that."

Yet product branding is essential to making the entire brand strong, according to Fred Geyer, managing principal in the Chicago office of Zyman Group, an international management consulting firm.

"One of the ways to look at the brand is that the brand is a promise," he said. "It's what you're going to get when you go to a restaurant. If people know what the promise is, it helps them decide where to go." Brands that can't deliver on the promise "don't have much power," Geyer said. The most powerful brands are those that consumers perceive as "the embodiment of the experience" that the brand provides. "That's how brands get value," he said.

And though corporate branding is different from product branding, the brand can act as a unifying element, according to Jeff Swystun, global director for New York-based Interbrand, a global branding and design consulting firm.

"A brand acts like a sort of mental sorting device because there are so many different things to consider when making a decision, big or small," he added.

And whether the message is about a product or the corporation, "brands require continual refreshing to stay relevant, exciting and appealing to the audience," he said.

gcebrzyn@nrn.com

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Research firm: Brand recognition drives success for major chains