Once an afterthought, brand licensing reaps billions for CPGs hungry for growth

Linda J. Dodson

Despite an enviable portfolio of iconic billion-dollar brands and widespread recognition, even a well-known company like Hershey sometimes needs a little help reaching consumers.

In early 2020, Hershey, the 128-year-old manufacturer behind brands such as Reese’s and Kisses, identified a market opportunity for healthier chocolate milk as part of an effort to position itself as a bigger player in the burgeoning better-for-you space. What the snack and confections giant needed was a low-risk way to enter the segment. Hershey had the chocolate and Ernie Savo, its head of global licensing, thought New Zealand-based dairy company A2 could supply the milk. 

Savo jumped on the phone with A2’s U.S. CEO, Blake Waltrip, to gauge his interest in a brand licensing deal where Hershey would use the company’s name and its proprietary milk, a product that has thrived in an otherwise struggling category by removing a protein known to cause stomach discomfort. 

The initial pitch was met with some skepticism by A2 because the proposed co-branded product would be a deviation from the better-for-you, organic and plant-based section of the milk aisle where A2’s products are typically found, formats that Hershey itself isn’t instantly synonymous with, Savo said.

“At first blush the CEO felt I was crazy,” Savo recalled. 

Hershey soon came back armed with data showing how the premium milk would fill a consumer need while helping A2 expand its exposure in the store.

“You have a unique point of differentiation in the dairy space but don’t really have a ton of brand awareness as to what A2 is, and I have this amazing chocolate that can make your chocolate milk taste a whole lot better and I need a point of difference in my chocolate portfolio,” Savo told Waltrip at the time. 

Eight months later the two sides hammered out a deal. The chocolate milk, which contains 8 grams of protein per serving and eschews artificial flavors, colors and preservatives, hit shelves in the U.S. last month.

From cookies to underwear

Once an afterthought for many multibillion-dollar food and beverage manufacturers, brand licensing deals are rapidly evolving into a lucrative source of revenue for CPGs aiming to grow their business, build equity and maintain or expand a product’s relevancy in an industry beset by mounting competition and changing consumer tastes.

Global sales revenue generated by licensed merchandise and services in food and beverages has steadily climbed from $15.2 billion in 2015 to $16.5 billion in 2019, according to data tabulated by Licensing International. The industry was responsible for about 6% of the $292.8 billion in global sales revenue generated in 2019 across all sectors. 

While the ongoing pandemic has upended business operations and made tabulating information since then more challenging, a report released last June by License Global ranked several food and beverage players among its truncated 2020 list of the top 75 companies by global retail sales of licensed and direct-to-consumer products.

Optional Caption

Courtesy of Danone


Hershey was the top food company at No. 24 with licensed products using the company’s brands generating $1.7 billion in sales in 2020. Keurig Dr Pepper was 33rd with $750 million, followed by Diageo, Anheuser-Busch and Jelly Belly.

“There is probably more excitement around the true value this creates more than ever,” Savo said of licensing. “You can get a lot done with a little bit of resource, and therefore it becomes a really nice, a really profitable business.”

In the typical licensing deal, one company agrees to follow certain conditions for the right to use another company’s brand. The licensee then pays a royalty fee that is usually based on sales. 

Licensing is divided into two distinct but equally important categories.

The first one expands a CPG’s offerings into adjacent food or beverage categories through a new product. These partnerships tend to prioritize generating revenue for a longer period of time while helping to bring lapsed users back to the brand or connect it with new audiences.

In the second option, which tends to be for a shorter duration, companies link their brand to a cartoon, movie or another opportunity to create buzz, excitement and interest. 

Post Holdings, for example, collaborated on a Fruity Pebbles makeup in 2021 inspired by its popular cereal. Danone North America last month partnered with Warner Bros. to launch a pair of International Delight coffee creamers inspired by “Willy Wonka and the Chocolate Factory,” while Mondelēz International’s Oreo brand “took over” the last remaining Blockbuster.

“They have two very different objectives but very important ones,” said Leah Broeders, who oversees licensing at Post’s consumer brands division. “The trick that we try to do is balance between the two, and how do we have that kind of steady drumbeat of those longer-term revenue drives but pulse in some of these fun and expected things in the right times and places?”  

“Realistically, it’s not a panacea. … It takes time just like every other function of the business. But it can provide you access you’re never going to get because you’re never going to have an abundance of resources.” 

Jeff Dotson

Vice president of strategic brand partnerships, Valen Group

While some deals garner immediate, short-term interest among consumers, licensing agreements can be more than just a quick marketing ploy. They can be an important tool to attract new consumers who might otherwise not get exposed to the brand, or to connect with a younger demographic who will play an essential role in maintaining sales and market relevancy into the future.  

Amanda Cioletti, an event and content director for the Global Licensing Group at Informa Markets, said Fruity Pebbles-branded makeup is a way for Post to reach younger consumers who in the past would have been exposed to the cereal during their Saturday morning cartoons. Today, Gen Z consumers are more likely to connect with the brand at their favorite cosmetics store or while spending time on Facebook or YouTube. The makeup also can tug at the heartstrings of adult consumers who grew up with the Flintstones cartoon and the cereal, giving them a sense of nostalgia. 

In the food space, few brands have as wide a reach when it comes to brand licensing as Hershey. The company’s licensing portfolio has swelled to more than 150 agreements.

Its Hershey, Reese’s, Kisses, Jolly Rancher and Heath brands are among those that can be found on food products ranging from cookies and muffins to frozen desserts and cereal. In general merchandise, Hershey brands adorn clothing, jewelry, ornaments, puzzles, home furnishings, body and cosmetic products and even underwear.

Optional Caption

Christopher Doering/Food Dive


In some cases, Hershey has prioritized using licensing to own an entire experience. For example, with its chocolate bar associated with making s’mores, Hershey has partnered to broaden its reach with grilling tools used to make the gooey treat, wet wipes to clean up the mess and sandwich bags to hold ingredients preportioned for entertaining in today’s COVID-19 world. It not only provides consumers with solutions, Savo said, but benefits retailers and the company through prominent store displays and higher basket sizes.

CPGs used to lump licensing revenue into their financial results, but now more companies are separating it out to show how much money they are generating and highlighting it to Wall Street analysts and investors during their quarterly earnings reports, said Cioletti. The financial windfall and success licensing provides in helping companies grow their brands is only serving as a catalyst for executives to seek out other partnerships. 

“You’re going to see more and more on the shelf at your local grocery store,” Cioletti predicted. “Once [CPG companies] see sales increase, once they have the data to support expansion, they will.” 

In addition to creating revenue through product extensions, brand licensing can also provide a lift to core brands.

Source Article

Next Post

Kind spotlights whole foods by refusing to sell its snack bars

Dive Brief: Kind Snacks will stop selling its prepackaged snacks through its website on March 1 and 2 in an effort to encourage consumers to purchase the company’s Whole Fruit and Nut Box instead, according to information shared with Marketing Dive. The brand is also placing a Kind Bar filled […]

You May Like