Kentucky Fried Taco Hut?

April 26, 2012 by  Filed under: Branding 

Several years ago during a road trip, while trying to decide where to stop for a quick meal, one of my friends suggested “Kentucky Fried Taco Hut.” Amused, I asked what in the world he was talking about: he meant the multi-branded Yum (a holding company that owns and operates Taco Bell, KFC and Pizza Hut) restaurants that featured two or three of the aforementioned restaurants combined into one convenient location.

Although we decided to avoid the potentially heartburn-inducing digestive tract danger, I have since taken greater notice of these co-branded relationships, what it takes for them to be successful, and how to legally create such partnerships.

The idea behind co-branding two or more different products or companies stems from the desire to – of course – bring in more revenue. The thought is that through leveraging the brand awareness, target demographic and marketing power by each of the goods or businesses, each party will sell more.

In fact, according to, A&W and Long John Silver’s at one time believed combination franchising to be “potentially the biggest sales and profit driver for the restaurant industry since the advent of the drive-through window.”

It’s not just restaurants that have gotten into the game, although it is the most noticeable use of the concept. Lexus and Coach have partnered up, offering Coach-branded leather seats, interior and even a bonus Coach leather tote. We’ve also seen fast-food shops like McDonald’s team up with toy companies and kids’ movies to create fun value-added prizes for happy meals. You may have eaten Lay’s potato chips featuring KC Masterpiece barbeque flavoring. Ever brushed your teeth using Crest Whitening toothpaste with Scope Outlast breath freshening action? Stopped into Walmart only to find a Seva salon available for a quick mani/pedi?

All great examples of co-branding in efforts to gain more market share and/or cut down on operational costs.

The legal structure of these mergers are often rather complicated and specific – and rightfully so! A brand wants to safeguard its name and trademarks while protecting itself from liability. There is also the important financial arrangement, exclusivity issues, the term of the partnership and the termination provisions. Let’s take a look at each of these issues so you can decide if a potential co-branding relationship would be worth exploring for your business.

Licensing: this portion of the agreement will clearly define the manner in which one brand may utilize the other brand’s name, logo and intellectual property.
Payments and royalties: here, the document explains how the co-brands will divide sales revenue resulting from each entity’s use of the other brand.

Exclusivity: The contract will prohibit the co-brands from entering into agreements with third parties that would compete with the business of the co-brands or interfere with maximizing revenue.

Term: this part of the arrangement will define the amount of time that the brands agree to co-brand; usually a short initial term is negotiated (long enough for the brand strategy to take hold and produce revenue) followed by optional extension periods depending on the success of the program.

Termination provisions: the agreement will discuss specific events that would trigger a right of either party to terminate the co-branding agreement, such as one party violating the other’s trademark or a failure to meet certain revenue or performance goals.

Clearly, the creation of a solid symbiotic co-branding agreement that results in a win-win situation for both parties is of utmost importance. Of course, the concept must be sound as well (for example, co-branding 3M course-grit sandpaper and Cottonelle toilet paper would be disastrous, to say the least).

But legally speaking, without an attorney’s assistance, it is likely that important deal points will fall through the cracks resulting in an ill-conceived partnership destined for difficulties and lost revenue.

Joshua M. Marks, Esq.

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