In 1955, a well-known brand began a partnership with an up-and-comer in a related industry. Both had wild-eyed aspirations of global reach, and the two have stayed together for more than 60 years, helping each other achieve their audacious goals. Six decades of working together have benefited Coke and McDonald’s immensely. For McDonald’s, their beverage revenue from Coca-Cola makes up more than 5 percent of their total sales. A confidant of Ray Kroc once commented, “When you’d ask Coca-Cola in what countries it had the biggest sales, it would say something like the United States, Japan, Germany and McDonald’s — and in that order. It was kind of funny, but it was true.”
The partnership between Coke and Mickey D’s reportedly exists without a paper contract, but with Coke providing a senior executive who oversees the relationship between the two brands for what Coke calls the “McDonald’s Division.” In 1993, Coke suggested the concept of the “value meal,” which first bundled a Coke drink with a sandwich and fries. Coke is even purported to taste better at the Golden Arches because it is sold in such high volume that the syrup is delivered by stainless steel tankers, rather than in plastic bags, and because McDonald’s filters their water more effectively.
Ray Kroc made a shrewd move in 1955 by creating a decades-long partnership with the leading soft drink brand in the country. Archrival Pepsi had to take a much harder route in order to build fountain sales by buying up KFC, Pizza Hut and Taco Bell. In doing so, however, they locked themselves out of many other potential customers in the restaurant business who would prefer to do business with Coke, which owns no competitive operations. Despite the fact that PepsiCo is a more diverse company with higher overall revenues than Coke, Big Red is a more valuable company and brand than Pepsi.
By contrast, consider the team of RadioShack and wireless service provider Sprint. The RadioShack brand has been taking a beating for, oh, about 25 years now. It has gone in and out of bankruptcy and failed to stay relevant in a changing electronics world. One of their few strengths was providing retail space for wireless phone providers, but the strongest brand they could attract was Sprint, the fourth-largest provider. Sprint recently made a huge investment in RadioShack, agreeing to rent space in 1,400 of RadioShack’s retail locations.
This move was questioned by Bill Menezes of the Gartner research firm, who acknowledged the value of the outlets, but said, “However, I’d question the value of having those outlets submerged inside the stores of a retail brand that’s fading, not rising, and now is in bankruptcy. It’s baffling why Sprint doesn’t buy these stores outright from RadioShack, turn them into Sprint stores and distance themselves from the damaged brand.”
The answer to Mr. Menezes’s question may be that this was the best deal that Sprint could get to rapidly expand its retail. It’s doubtful, for instance, that there was any space for rent in the Apple Store, and not likely that Sprint would be Apple’s first choice if there were. As a fourth-place brand, Sprint had second-rate options to choose from, and lacked the brand strength to command a more lucrative partnership such as the one Coke and McDonald’s have built. Sprint’s deal with RadioShack appears to be more of a real estate move than a synergy of brands. Given the relative power of their own brand, this was likely the best that Sprint could do.
As published in the Central Penn Business Journal, the Northeast Pennsylvania Business Journal and Lehigh Valley Business.