Latest / Franchise Conversations with Fexingo: Buying, Running, and Scaling Franchise Businesses / How Franchisees Are Using Co-Branding to Boost Revenue
Transcript
- Lucas: You walk into a strip mall for lunch. On your left, a standalone Taco Bell. On your right, a standalone KFC. And then, in the middle, one storefront with both logos. That combo unit is becoming a lot more common, and it's not just about convenience for the customer. Luna: Right, because for the franchisee, it changes the entire unit economics. You're essentially doubling your addressable menu without doubling your rent. Lucas: Exactly. Co-branding — putting two or more brands under one roof — is one of the fastest-growing strategies in franchising right now. According to FRANdata, the number of co-branded franchise units in the US grew by about 14 percent year-over-year in 2025. And we're seeing it most in quick-service, but it's spreading to retail and services too. Luna: Fourteen percent is significant. But I'm curious — is this, like, a franchisee-led push, or are the franchisors driving it? Lucas: It's actually both, but the momentum is shifting to franchisees. In the past, co-branding was often a corporate experiment — Yum! Brands has been doing it for decades with KFC and Taco Bell, or Pizza Hut and WingStreet. But now, franchisees are the ones going to their franchisors and saying, 'Look, I have a location with excess kitchen capacity. Can I add a second brand?' And franchisors are realizing that if they don't allow it, they risk losing good operators to competitors who do. Luna: So it's a retention tool, too. The franchisee gets higher revenue per square foot, and the franchisor keeps a top performer from jumping ship. Lucas: Exactly. Let's look at a specific case. There's a franchisee in Texas who operates a combined Taco Bell and KFC unit. Same kitchen, two separate brands, shared dining area. According to their P&L, lunch sales jumped about 20 percent compared to a standalone Taco Bell he also runs. Why? Because the combo unit captures groups — one person wants a burrito, another wants fried chicken. They don't have to choose a restaurant; they pick the one that has both. Luna: Twenty percent lift on lunch is huge. But that's not just free money, right? There are operational complexities. You're training staff on two different menus, two different prep procedures, maybe two different point of sale systems. Lucas: No, it's definitely not simple. The biggest challenge is labor. In that same Texas unit, the franchisee told me they had to add two extra people per shift just to handle the dual prep. But even with that, the incremental gross margin was still positive because the rent and utilities are essentially fixed. So the extra labor cost was more than offset by the revenue gain. Luna: So the math works if you have the volume. But what about brand equity? Doesn't putting Taco Bell and KFC under the same roof dilute both brands? Lucas: That's the big fear from the franchisor side. They worry that the brands start to blur in the consumer's mind. But the data so far suggests that's not happening — at least not in a way that hurts sales. A study from the International Franchise Association last year found that co-branded units actually had higher customer satisfaction scores on average, because the variety was seen as a benefit. The key is that the brands need complementary dayparts. Taco Bell does well late-night; KFC does well dinner. They don't cannibalize each other. Luna: Right, daypart complementarity is crucial. If you put two breakfast-heavy brands together, you're just splitting the morning traffic. But Taco Bell and KFC actually cover different peaks. Lucas: Yes, and that's the strategic angle. Smart franchisees are looking at their local traffic patterns and asking, 'What brand fills my dead hours?' If you're a breakfast-only concept, maybe you add a lunch brand. If you're a pizza joint that's dead before 4 PM, maybe you add a coffee concept. There's a franchisee in Florida who runs a Dunkin' inside a Baskin-Robbins — but they also added a small hot food counter under a different brand to capture lunch. It's essentially a multi-brand incubator. Luna: That sounds like a lot of balls in the air. How do you even find a franchisor that's open to that? Lucas: You start by reading the franchise disclosure document carefully. Most franchise agreements have a non-compete clause that restricts what other businesses you can operate. But some franchisors are now offering 'co-branding addendums' that spell out the terms. You want to look for explicit permission, not just silence. And you want to negotiate the royalty structure upfront — some franchisors charge a reduced royalty on the second brand because they're sharing the real estate cost. Luna: So the royalty might be, say, 4 percent on the primary brand and 2 percent on the secondary? That changes the ROI significantly. Lucas: Exactly. And there are franchisors that actively encourage co-branding as a growth strategy. Focus Brands, which owns Cinnabon, Auntie Anne's, and Carvel, has a program called 'Brand Blender' that lets franchisees combine multiple concepts in one location. They provide a playbook for kitchen layout, menu integration, and staff training. So the risk is lower because the franchisor has already figured out the operational kinks. Luna: That's smart. But I imagine not every franchisee wants to take on that complexity. You have to be a pretty sophisticated operator to run two brands well. Lucas: Absolutely. This is not for a first-time franchisee. The ones doing it successfully are usually multi-unit operators who already have a handle on labor management, supply chain, and local marketing. But for those who can pull it off, the economics are compelling. One franchisee I spoke with in Ohio runs a combined Pizza Hut and WingStreet. He told me his EBITDA margin is about 3 percentage points higher than his standalone Pizza Hut unit, because the incremental revenue from wings has almost zero incremental rent. Luna: So the margin expansion comes from spreading fixed costs over a larger revenue base. That's classic operating leverage. And in a time when rents are still high — especially in prime locations — that's a huge advantage. Lucas: Exactly. Real estate is the biggest fixed cost for most franchisees. If you can generate 30 percent more revenue from the same square footage, your rent to sales ratio drops dramatically. And that's the whole game — improving that ratio without taking on more debt. Luna: Before we go further, I want to mention something that ties into this. If these conversations have helped you think differently about your franchise strategy — whether it's co-branding or something else — I want to point out that listener support is what keeps this show ad-free and independent. You can buy us a coffee at buy me a coffee dot com slash fexingo. It's a small way to help us keep bringing you these deep dives. No pressure at all, just if you find value in it. Lucas: Yeah, and we genuinely appreciate that. It allows us to spend the time on research that goes into episodes like this. Now, back to co-branding — one risk we haven't talked about is brand dilution from the customer perspective. If the quality of one brand slips because the staff is stretched, it can drag down the other brand. Luna: That's a real concern. And it's why some franchisors require separate kitchen teams for each brand, even if they share a back of house. You don't want the same person making a taco and then breading chicken without proper sanitation. Lucas: Right. So the operational design has to be thoughtful. But when it's done right, co-branding can be a win-win. The franchisor gets more revenue from the same location, the franchisee gets better unit economics, and the customer gets more choice. I think we'll see more of this in the next few years, especially as franchisors become more comfortable with the model. Luna: I'm curious — are there any sectors outside of food where co-branding is taking off? Lucas: Yes, actually. In fitness, we're seeing franchisees combine boutique concepts like yoga and cycling under one roof. In home services, some operators pair a cleaning brand with a handyman brand. The principle is the same: complementary services that share a customer base but operate in different dayparts or needs. The key is that the brands don't compete; they cross-sell. Luna: So really, it's about maximizing the lifetime value of your real estate and your customer list. That's a powerful framework. Lucas: Exactly. And it's one more tool in the franchisee's toolkit for growth. Whether you're a single-unit operator looking to expand, or a multi-unit operator optimizing your portfolio, co-branding is worth a serious look.