The power of mega-brands such as Coca-Cola and McDonald's has never been doubted. However, the current environment of changing consumer lifestyles requires the need to develop a portfolio of highly focused and differentiated products and services. In this scenario, the monolithic brand can prove a hindrance rather than a help. This week saw some the world's biggest brands joining forces to leverage each other's strength in order to capitalise on new markets. Datamonitor's consumer markets division highlights the potential pitfalls and advantages of the new ventures.

This week, fast-food giant McDonald's paid a reported GBP26 million for a 33% share in the highly successful UK-based sandwich bar chain Pret a Manger. This comes as part of McDonald's continuing diversification strategy, including UK-based coffee shop chain Aroma and the US-based Chipotle Mexican Grill fast food restaurants chain. Pret has much to offer to McDonald's as the US giant seeks to adapt its historically successful formula to the changing demands of the 21st century.

McDonald's and Pret a Manger: A Match Made in Heaven?
The 'consistency' definition of quality upon which McDonald's built its success is no longer sufficient for today's high-expectations consumer. The most successful recent quick-service concepts, such as Starbucks and Pret a Manger, combine the speed and convenience of traditional fast food and drinks with greatly enhanced 'food experiences' that combine new standards in flavour and freshness with strong lifestyle and ethical branding. These values are merging into a new definition of quality, epitomised by Pret's 'passionate about food' slogan. The company's success in marketing such premium products freshly made from natural ingredients, both in the UK and in its US outlet which opened last year, shows the potential of this new approach.
 
Clear Synergies between Coca-Cola and Nestlé
Nestlé and Coca-Cola this week announced the expansion of their joint venture, which is designed to take on the New Age Beverages market. The joint venture between the two companies has been in place since 1991, and is clearly delivering positive results. The companies are now re-branding the venture as Beverage Partners Worldwide (BPW) and have agreed to expand the venture with additional brands and new markets. This powerful alliance has already proved very successful as it combines the strong brand position of Nestlé with the distribution network of Coca-Cola. In the case of new age beverages, the category is currently in its infancy and is still highly fragmented. BPW is now in a strong position to seize the initiative in this category and create global brands.

If It Ain't Broke…
While getting in on new trends is vital, neither McDonald's nor Coca-Cola should tamper with the formulas that have served them well for many years. In the case of the fast food giant, the strength and associations of the McDonald's brand would preclude any future transformation of the business to reflect the new reality. Most Pret shoppers would be highly unwilling to go to a McDonald's branch, even if it did serve organic sandwiches.
 
Whilst the mega brands do not and should not tamper with a strong brand, they should have the foresight to see that they do not want to be yesterdays' news when it comes to the consumer landscape of a decade's time. While new trends are visible in today's consumer lifestyles and habits, these are trends that are on the periphery of, rather than in the midst of the current consumer base. Brands such as McDonald's and Coca-Cola can still bank on their core market offering, but need to recognise that on the horizon will be a growing population that wants something different. 

Such a strategy of diversifying, however, is by no means applicable on a global basis. While changes are afoot in the consumer landscape of the US and the EU, this does not extend to other parts of the world. Several mega-brands can count on Asia and Africa as their strongholds, and it is in such markets that diversifying or changing their offer is currently not relevant.

McPret Unlikely to Appear
"In an environment where consumers are increasingly looking for solutions that offer a closer fit with their specific aspirations, lifestyles and needs, it is important for McDonald's to keep brands separate when diversifying and develop a portfolio of clearly differentiated concepts. If consumer brands are merged, it could be potentially harmful to both sides, as they could actually hold conflicting brand values. For this reason, McDonald's have kept the Aroma fascia and identity as it was. Similarly, we are unlikely to see a 'McPret' branded outlet on our highstreets," comments Hugo Ehrnreich, Datamonitor senior consumer markets analyst.

Datamonitor are independent market analysis experts that publish a wide portfolio of strategic business information. Datamonitor has expertise in the following industry sectors: Consumer Markets, Energy, Financial Services, Healthcare, Industrial, Medical Equipment, Technology. See www.datamonitor.com for further details.