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    FRESH FOOD: Franchise Partnerships: Brewing distinction

    With coffee, doughnuts, and strong sales, branded in-store cafes are becoming integral top destination-oriented retailing.

    Teaming up with partners to provide one-stop shopping for busy consumers is nothing new in the supermarket derby. But thanks to the clout and traffic that certain brands are capable of delivering, a growing numbers of supermarkets are now embracing co-branded alliances as a key way to create a unique store experience.

    The past 12 months alone have produced several new cross-channel collaborations between well-known retailers. Among those deals are one that teams Stop & Shop and its sister retailer Giant Food of Landover with Staples in a scheme to roll out Staples-branded store-within-a-store sections across all 550 Stop & Shops and Giant Food supermarkets beginning this month.

    Another of Quincy, Mass.-based Stop & Shop's moves into co-branded retailing was revealed in late May, when it opened its first of five planned 1,100-square-foot Wild Oats store-within-a-store sections, inside a remodeled Plymouth, Mass. location.

    "This will provide shoppers with more services and a convenient alternative to pick up something else during their weekly shopping trip," says Robert Keane, spokesman for the Ahold subsidiary.

    These deals follow other instances of Stop & Shop's penchant for collaboration with established brands to drive traffic and loyalty among existing and new customers. Other current partners include Dunkin' Donuts and Boston Market. The chain has been strategically aligned with Canton, Mass.-based Dunkin' Donuts since February 2002, when the two opened the first round of full-service dedicated doughnut shops within Stop & Shop in-store bakery departments.

    It's not just the supermarkets that are gaining points with consumers. "Dunkin' Donuts is always looking for new ways to interact with our consumers and bring our benefits to them," explains John Fassak, v.p. of business development for Dunkin' Donuts. "Being situated in supermarkets is a natural fit for us. It's a win-win situation for Dunkin' Donuts and the host supermarkets. We're a solution to growing the host business' needs."

    The power of the Dunkin' Donuts brand enhances the overall shopping experience while it allows the brand to tap into a group of consumers who, on average, visit supermarkets between 70 and 80 times each year, says Fassak. "In addition, we're helping to build brand loyalty for both the supermarket and Dunkin' Donuts, by bringing our product to people in a way that fits into their daily routines."

    Dunkin' Donuts at present has more than 100 in-supermarket stores offering a full line of products. The doughnut chain seeks retail partners "that have excellent relationships with their customers," says Fassak. "We want to be situated in supermarkets that provide a superior overall customer experience. Of course, we also want to ensure that the supermarket is large enough to allow us to provide the full expression of our brand. Consumers love our beverages, but they really prefer to be able to access the full expression of our brand, which includes hot and iced coffee, our line of high-quality espresso beverages, doughnuts, bagels, muffins, and even our breakfast sandwiches."

    Correct positioning in the layout is paramount, according to Fassak. "We want to be accessible and visible to customers, because we feel that gives us the best chance to increase incremental traffic and help the supermarket to enhance their overall performance."

    As part of a recently initiated push to expand beyond its core Northeastern U.S. corridor, Dunkin' Donuts plans to open 150 more stores in the Baltimore and Washington, D.C. market by 2008, and add 60 new units in Charlotte, N.C. by 2009.

    "Dunkin' Donuts is a power brand that makes an emotional connection with consumers," says Fassak. "We're growing nationally and moving into a number of new markets, including Cleveland, Cincinnati, Charlotte, and Tampa. We expect to increase our overall number of shops from approximately 4,400 now to 15,000 by the year 2020."

    It will also continue to grow its presence in supermarkets "when we feel that the opportunities will be mutually beneficial for the consumer, the supermarket, and for Dunkin' Donuts."

    Interestingly, it's coffee, not doughnuts, that will drive the retailer's growth, given that 62 percent of its revenue base is being generated from beverages.

    Liquid gold

    The allure of coffee-based beverages is leading more national supermarket operators to ink similar new alliances and devise new formats that tap into the barista-brewed liquid gold. Among the most recent is a deal between Kroger's Los Angeles-based Ralphs division and specialty coffee and tea retailer The Coffee Bean & Tea Leaf.

    The new brew program, rolled out in 300 of the grocery chain's service delis in mid-June, features the same products served in the beverage chain's own retail units, including eight freshly roasted coffees, five premium whole-leaf tea bag selections, and a signature hot chocolate product. However, the partnership also offers Ralphs shoppers exclusive product introductions, including Guatemala Organic Coffee, which will be served fresh at Ralphs in-store service delis.

    Melvin Elias, c.o.o. of The Coffee Bean & Tea Leaf, calls the deal "exciting," adding that his Los Angeles-based company's alliance with Ralphs pairs "neighborhood favorites with California residents."

    Last month also saw the unveiling of a partnership between Fry's Food & Drug, another Kroger banner, with Tully's Coffee, via a new cafe in Fry's Buckeye, Ariz. store. Manned by 12 Fry's employees, the 500-square-foot "living-room-style" café features Seattle-based Tully's full line of espresso, drip, and blended drinks; gourmet soft ice cream; sandwiches; salads; juice; and cookies. It also features a leather couch and chairs, a big-screen television, a seated bar, and tables.

    These collaborations build on the momentum from a handful of similar joint ventures launched recently between supermarkets and coffee beverage sellers, including an in-store cafe located in the entrance of a newly opened Bigg's prototype store in suburban Cincinnati, operated by a local independent coffee purveyor, Awakenings. And West Sacramento, Calif.-based Raley's has added a full-service Java City Cafe, equipped with wireless Internet, in its Rio Rancho, N.M. location.

    A new Port City Java prototype cafe debuted earlier this year in Harris Teeter's new store in Wilmington, N.C., which is also home to Port City Java's corporate headquarters.

    As Port City Java's first completely modular unit, the prototype is built off premises, shipped to the location, and reassembled, a strategy that company officials say allows more time to pinpoint an opening date while reducing construction costs and freeing up capital until just days before opening. The company had the cafe unit delivered four days prior to the new Harris Teeter's grand opening.

    As in the Port City Java/Harris Teeter case, the joint ventures often pair strong local or regional retail brands. Lund Food Holdings, Inc, operators of eight Lunds, 12 Byerly's, and three Rick's Markets, has enjoyed a lengthy partnership with fellow Twin Cities coffee roaster Caribou Coffee, which runs licensed in-store cafes inside 15 of the Minneapolis-based retailer's stores. Caribou Coffee is one of Lund's trio of corporate partners, along with PrairieStone Pharmacy and Minneapolis Floral.

    But national players -- and at least one international one -- are increasingly making their mark. Finding new venues for keeping customers "caffeinated" is tremendously important to the expansion strategy that has created the world's most recognizable coffee call brand, Starbucks. The Seattle-based company operates more than 2,100 licensed stores, 1,300 of which are located in supermarkets or supercenters, including stores operated by major chain operators Albertsons, Target, Kroger, Safeway, and Ahold.

    All of Starbucks' grocery cafes are brand-operated and licensed, rather than franchised, says spokesman Nick Davis, "which allows our grocery partners to build their overall business by allowing their customers a complete Starbucks experience within their business." The resulting benefits for Starbucks, adds Davis, "in turn allow us the opportunity to surprise and delight our customers, who may not have expected to find us there. Overall it's about working closely with our licensees, so they can successfully deliver the total Starbucks experience."

    Renowned for being guarded about its processes for selection of sites and licensed partners, Starbucks won't discuss specific details of arrangements with its licensees. Davis will, however, allow that Starbucks chooses to "reach out and partner with industries that are also committed to delivering high-quality products and great customer service. The grocery channel continues to be an area of focus for our licensed store business," he says.

    Despite its already sizeable market penetration, Starbucks is clearly poised to take its caffeine capitalism even further. Company officials have recently remarked that its potential for growth is even greater than previously believed. In fiscal 2005 Starbucks expects to open approximately 1,500 new stores globally, which will boost its year-end total to more than 10,000 locations worldwide. It plans to open roughly 550 company-operated locations and 525 licensed locations in the United States.

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