BusinessWeek conducts a Q&A with Tim Hortons’ David Clanachan and Cold Stone Creamery’s Dan Beem on the ins and outs of co-branding

Tim Hortons and Cold Stone Creamery have co-branded nearly 50 restaurant locations in the U.S. and Canada this year and are continuing to expand the partnership, which grew from a chance meeting between the company CEOs in early 2008. BusinessWeek columnist Steve McKee asked Dan Beem, Cold Stone’s president, and David Clanachan, Tim Hortons’ chief operations officer, to explain why they did it and how it has worked. Edited excerpts of the interviews follow.

Why did you initiate this co-branding effort? What challenges were you trying to address? What opportunities were you trying to leverage?

Dan Beem: The co-branding initiative will leverage complementary dayparts [breakfast, lunch, and dinner in restaurant parlance] and seasonality to provide a quality experience for customers, a profitable scenario for franchisees, and to take advantage of prime real estate with little additional capital needed. Cold Stone Creamery drives significant customer traffic and sales in the evening market while Tim Hortons creates a substantial portion of its traffic and sales in the morning and lunch dayparts. Each brand has global reach with strengths in different markets that can be leveraged by the other brand.

David Clanachan: Co-branding with Cold Stone Creamery offers customers a reason to visit our co-branded locations morning, noon, and night. Tim Hortons’ strength is our morning and noon day periods with coffee and baked goods, soups, and sandwiches. Cold Stone’s strength is afternoon and evening periods with ice cream as a snack treat. Our intention is to fill each other’s non-peak periods with new or even repeat customers.

Co-branding allows us to leverage efficiencies and costs from a real estate and operational standpoint. And co-branding gave us the opportunity to leverage our similar customer profiles.

What specific attributes/imagery do the two brand identities share that led you to believe a co-branding effort between them might be beneficial?

D.B.: It was a natural fit in terms of dayparts, but more than that, both represent the best of each space. Our brands have similar philosophies when it comes to customer service and quality of product. We knew they would be great together.

D.C.: In a nutshell, we saw our brand identities as very similar in commitments to quality, friendly service, and cleanliness. But it was freshness that jumped out at us. Tim Hortons mantra is “Always Fresh,” from our 20-minute freshness guarantee on our coffee, to our baked goods and soups and sandwiches. Likewise, Cold Stone makes its own ice cream on premises and then mixes in whatever decadent ingredients you want, right in front of you. Freshness was a point of differentiation that we thought would lead to better collaboration.

In what attributes/imagery do the two brands differ that presented challenges to the effort?

D.B.: Value is getting great play in this economy, but comfort consumption is also doing well. Because purchase decisions can be different between Tim Hortons and Cold Stone Creamery customers, we were sensitive to the challenges this may pose. Cold Stone Creamery is often an occasional indulgent experience, a 10-minute vacation, whereas Tim Hortons is a daily convenience visit. What we found, however, is that these differences actually impact the complementary brand positively.

D.C.: How customers relate to each brand was an early consideration. Tim Hortons is largely a convenience play: The location of our stores, speed of service, and how we fit into someone’s busy work day are customer priorities. Cold Stone is largely a destination play: Customers will travel there and usually at a time when they are less rushed.

What criteria did you set up to evaluate whether or not the co-branding effort would be successful?

D.B.: There are two things we’re looking at: Obviously revenue is important but we’re also looking at the impact of primary [food and labor] cost and what this means profitability-wise to the franchisee. We also want customers to react positively.

D.C.: We’re assessing several criteria to determine the initiative’s success. We’re considering customer perception and impact on brand awareness and reputation. We’re looking at straightforward business metrics such as profit growth for franchisees and overall sales growth. In between, we’re evaluating things like the cost and ease of converting stores to co-branded locations and what return on investment that gives to our franchisees.

What problems were you worried it might cause? To what extent did you see them crop up?

D.B.: When adding anything new to the menu, cannibalization is a concern. However we’re pleased that early test results suggest there have been net gains for both brands and no signs of cannibalization.

D.C.: We’re fortunate that we haven’t had any surprises we hadn’t anticipated. I think our contrasting delivery models were something we were acutely aware of—how Tim Hortons places a high priority on speed of service and how Cold Stone places a high priority on the customer experience, with staff singing and product sampling. But we didn’t think they were mutually exclusive priorities for customers, and our success so far bears that out. We’re learning as we go, so we’re adjusting quickly to minimize any bumps and we’re pretty encouraged by the customer feedback.

What advice would you give to other brands considering entering into co-branding arrangements? Are there four or five key considerations a prospective co-branding arrangement should/must meet?

D.B.: 1. Look for brands that complement each other in terms of dayparts and seasonality, rather than compete.

2. Look for synergy between the product offerings.

3. Ask yourself if it will enhance the customer experience rather than detract from it.

4. Ensure the management teams are compatible and like-minded.

5. Start small. Consider testing a small number of co-brand locations before committing to a larger scale initiative.

D.C.: 1. At a quick-service food level, ensure you have complementary menu offers. It makes no sense to cannibalize each other’s business.

2. Research, test, analyze. Repeat. Then test and analyze again. And again.

3. Clearly define your organization’s objectives and communicate them in advance to your co-branding partner.

4. Work with a brand and organization that possesses the same values and attitude. Check your egos at the door and commit fully to working together. If you’re not going to respect each other and approach the venture with a sincere spirit of cooperation, where the other guy’s success is your success, then you should just stick to your own knitting.