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Brand extension into F&B: what, why, and how AI may help

by Anh H. Nguyen

Brand extension and its perils

What is brand extension? If you have ever had a Starbucks Frappuccino, used the IPad, or sprayed some Gucci fragrance on your wrists before a date, you have bought into brand extension. In the broadest sense, brand extension is what happens whenever a new product, called a spin-off, is marketed under an existing brand name. Brand extension has many facets. A company may choose to pivot around an expertise (Food Network cookware), a customer base (Fisher Price diaper), a celebrity (Kylie Jenner cosmetics), a signature product (Steinway Furniture Polish), or a lifestyle (Martha Stewart Bedding).

Brand extension has a long history: early examples dated back to the 1960s. It is also impossible to escape: up to 81% of new products being introduced are associated with another, more established brand name. It is easy to see why: launching new products is usually a costly, tricky venture. Brand extension is a reliable way to leverage a brand's reputation to bypass initial buyers' apprehension and minimize financial risks.

Not all brand extensions are successful, though. Business literature is rife with examples of baffling, sometimes disastrous attempts by companies to branch out. At best, the new products fail to capture the market's interest and get discontinued: e.g. McDonald's pizza in the 90s, KFC's fried chicken and gravy-scented candles, or Cosmopolitan's yogurt. At worst, they dilute the brand's equity and turn even long-time customers away: Harley-Davidson's fragrance line, for instance, did not resonate with the "tough guy", hyper-masculine image that the brand tried to project to its loyal fans. Not only did the eau de toilette fail to engage Harley-Davidson's hardcore fan base, it practically alienated them. The lesson is that any effort to extend a brand must be executed with a proper understanding of its value, character, and identity.

Trend alert: A cup of coffee to go with my handbag, s'il vous plait

Lately, a new movement has emerged. Brands, most of them in the luxury fashion segment, are expanding in a literal, physical sense. Several premium Dior cafes with pastries exquisitely created by the renowned Pierre Herme reside within the Dior boutiques in Seoul, Tokyo, and Saint Tropez. Not to be outdone, Chanel has opened a gorgeous cafe named Le Jardin de Tweed on the top floor of its Ginza boutique, and a restaurant, Beige, in the same building. Armani is probably the most prolific: it has 13 cafes and restaurants in total, including one inside its Munich store. Gucci is catching up, too, opening cafes and restaurants under the name Gucci Osteria in the swankiest locations on the planet - Milan, Florence, Tokyo, and Los Angeles, all of which attract constant streams of visitors. There are also multiple Bvlgari cafes in Dubai, Tokyo, and Osaka, two Blue Box Cafes by Tiffany in New York and London, Louis Vuitton's first-ever cafe and restaurant in Osaka, Ralph's Coffee by Ralph Lauren in New York, Hermes cafes in Seoul and Tokyo, Bar Luce by Prada in Milan, beautifully designed by the outstanding Wes Anderson.

Fashion houses are not the only ones doing the F&B expansion, though. There are cafes and restaurants operated by automobile manufacturers such as the Fiat Caffe, Mercedes-Benz cafes, and Lexus's three restaurants. And some brands go even bigger: Bvlgari, Versace, Christian Louboutin, Armani, and Dior are setting up posh designer hotels like the Palazzo Versace or the Suite Christian Dior in Cannes. This trend has been bubbling under the surface for a while, but the last three years have seen significant, visible escalations. Why are those brands, so secure in their prestigious standing and plush bottom line, choosing to pursue these "pet projects"?

Is this a hotel or a boutique? The entrance of Bvlgari hotel in London is almost indistinguishable from its storefront.

The logic behind the brand extension trend into the cafe and restaurant business

Brick-and-mortar stores are still the champion in retail, there is no question about that. In the US, for example, e-commerce has always hovered around only 10-11% of total retail sales, and only reached 16.1% in the second quarter of 2020 as a result of Covid-19. But that does not mean physical stores could rest on their laurels. Although the profit from F&B businesses are likely to be minimal, premium brands are doing it to create a multi-layered experience for their customers. Joe Pine, the author of The Experience Economy believes that restaurants and cafes fall under the umbrella of experiential elements, and brands are capitalizing on those to appeal to a new generation of shoppers. Gen-Z and millennials, especially, seek to be thrilled with novelty and show it off on social media.

There are undoubtedly many parallels between high-end fashion and high-end F&B. Both focus on enjoyment, on quality of ingredients, services, and the crafts involved, on a sense of abundance and refinement. Graham Hitchmough, regional director of The Brand Union Singapore, opined that those brand cafes act not as revenue generators but rather as a sensible component of the ecosystem of the brands experiences. He also noted that people are constantly looking for nice spaces to relax and hang out in that are NOT an ubiquitous Starbucks store.

By expanding to F&B business, luxury brands open new channels for customers to connect to them without appearing too needy, for lack of a better word. This paves the way for further converting customers down the road. While only a select class could afford a Birkin or Kelly, most people are more than able to order the espresso at the Hermes petit cafe in Ginza. Priced at a mere 9 US dollars, it comes with two charming miniature replicas of the famed Hermes bags in dark and milk chocolate. It is likely the cheapest thing anyone would ever get at Hermes, and it is perfect for Instagram. All luxury brand cafes do that: putting their cute signature touches on their F&B products: from Dior to Yojiya. This allows people a taste of the luxury lifestyle, to make them feel as if they, too, belong to an exclusive, genteel club without breaking the bank. The rich comfort that a trip to a brand cafe provides, while short-lived, acts as a kind of gateway for not-yet-fully-converted customers, giving them happy memories and sensations that will forever be linked to the brand in their minds.

Hermes cafe in Ginza , Tokyo (credit: Lip's Temptation)

Yojiya cafe at the top floor of the store in Gion, Kyoto (credit: Tripadvisor)

Coffee at the Cafe Dior in Seoul is served in tableware adorned with the Dior's classic "cannage" motif, which is often seen on its leather handbags and accessories. (Credit: A fat girls' food guide)

As the economy fluctuates and people think twice about biting the bullet on luxury purchases, this is also a crafty way to push brand awareness. Many luxury houses are wary of overly aggressive marketing ploys, preferring to maintain a certain sense of decorum and poise - it is, after all, a critical part of the optics that keep luxury houses where they are. By getting customers to come to them, brands gets free advertising while still appearing selective and desirable. The Coco Cafe pop-up by Chanel in Shanghai mastered this: excited customers waited in line for hours in exchange for a free coffee and trying on three Chanel beauty products. They also got to take pictures with oversize pink Chanel logos, which would undoubtedly go up on the Internet later. That is a classic example of pop-up retailing, the hottest retail trend in China right now.

Thanks to its success in Shanghai, the Chanel's Coco Cafe pop-up also came to Hongkong

Not only does brand extension enrich customers' experience, it also helps convey the brands' status as the ultimate purveyors of lifestyle. Giorgio Armani said it best:

“I’ve always wanted to create a complete Armani lifestyle that reflects my ideas and can be applied to different areas, not just fashion. Restaurants and cafés seemed a logical expansion.”

With a small empire of 308 stores and 15 extension-establishments, including one ultra-classy hotel situated in the Burj Khalifa, the world's tallest tower, Monsieur Armani certainly knew what he was talking about. The legendary designer has a peculiar knack for understated yet lush aesthetics, and his Dubai hotel was selected by the World Luxury Hotel Awards as the best globally in 2016 for its serene, streamlined sense of indulgence, further cementing Armani's reputation as the master of effortless luxe. For brands to achieve that kind of success, they need to be certain of their core ideals and be consistent in communicating them to the public. Only then could they create a sort of immersive, harmonious cocoon for those who identify with said ideals.

Armani's hotels around the world are representative of the brand's pared down yet sultry magnetism

However, for other, less well-known brands, the reasons may differ. Boosting dwell time for customers is a straightforward yet no less legitimate motivation. It works out as simple math: more time spent in stores equals more sales. When Hackett, a menswear retailer in London added a club-style gin bar to their flagship store, that was their exact reasoning. Managing director Vicente Castellano said: "It is widely known that men do not necessarily spend a great deal of time in stores when shopping, so we felt that free gin and tonics were a great incentive to increase browsing time and ultimately increase sales.” The sentiment was echoed by Joe Pine: “If you, as a retailer, can get your customers to spend more time with you, then, naturally, they will spend more money as well.” Lorna Hall, head of market intelligence at trend forecasting agency WGSN, elaborated further:

"Retailers need to create something other than product. Product is not enough; they have to create a destination and keep customers with them. They need to increase dwell time and give them a reason to come.”

For brands that fly even deeper under the radar, dedicating some space in their stores for F&B business may help them gain exposure. Food and drink are invariably crowd pleasers - it has been noted that it was food and drink, not fashion, that draw people to malls. In order to compete with online shopping and other physical store competitors, retailers need to get creative. An inviting cafe, bakery, or restaurant attached to the stores could attract newcomers and let them learn about the brand in a natural way. Multi-brand designer company Wolf & Badger, for example, has added a healthy food line titled Raw Press to their boutiques.

“Some of our customers now regularly buy juice and others have started buying from Wolf & Badger. They may not have been in before and, by coming for a juice, they find out what we’re all about and become regular customers”, co-founder George Graham said.

And it works: footfall traffic to both boutiques has increased between 20 to 30 percent.

How AI Analytics solutions could measure and enhance the effectiveness of brand extension

One caveat of brand extension is the difficulty in gauging its exact impact. In the previous example, while George Graham knew that the addition of Raw Press juice bars had positive outcomes across both locations, he did not know just how positive. He was able to put the rise in traffic at between 20 to 30 percent, perhaps thanks to traffic-counting heat sensor, but could not identify the resulted sales. Honor Westnedge, lead retail ‎analyst at intelligence firm Verdict Research, expressed a similar uncertainty: “I’d expect there to be a small uplift in sales, just like click-and-collect does. That captive audience may well be tempted to purchase.” In Ho Chi Minh city, Triumph Motorcycles recently opened a stylish cafe attached to its showroom in district 7 which instantly became a hit due to its strategic location and great menu. However, the sales manager, when asked, could not ascertain how many customers cross the threshold between the cafe and the showroom each day, neither how many direct sales come from them.

Modern Classic Cafe is part of Triumph Motorcycles showroom in district 7, Ho Chi Minh city.

The solution may lie in AI Analytics softwares with people-tracking features. For brands that have extensions operating in the same property or adjacent to one another, such softwares are wonderfully fitting, for they could benefit from using the same surveillance system. Not only could people-tracking softwares pinpoint the accurate amount of traffic and sales generated by a newly added enterprise, they could categorize them into different segments and detect invisible patterns in a matter of days. If said enterprise successfully gives rise to a great deal of traffic but the store fails to turn that into a corresponding amount of sales, for examples, that means the enterprise is not at fault. On the other hand, retailers may learn surprising insights about the customer demographics that visit the extensions and devise marketing strategies based on that knowledge.

Building a business is akin to building a house - the more floors you add, the more challenging it is to maintain structure integrity. A house that accommodates 10 people may very well use a comparable blueprint as one that fits 5, but to build a house that holds 1000 people, you need a whole new slew of construction principles, materials, systems, and procedures. As brands strive to augment their business by diversifying, it is critical to invest in a technology that strengthens their operations. For more information, please visit:



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