“Forever” Partnerships in Food & Beverage Licensing
Stephen Reily
August 14, 2024
Traditionally, licensors do not want to grant long contract terms to licensees. It deprives the licensor of both the ability to extract itself from a deal that fails to meet expectations and the ability to renegotiate for better terms in a deal that exceeds them. While the point of licensing (at least in IMC’s opinion) is to build long-term partnerships, we also always want our clients to have options.
Many of us can also point to licensors who suffered when a licensee’s term was so long that it took away a key part of the brand-owner’s power. When IMC represented the Manischewitz brand as their licensing agency in the early 2000s we learned that the product for which Manischewitz was best-known by some consumers – its kosher wine – could never be renegotiated or enhanced because it was tied up in a licensing agreement that had an initial term of 50 years and an “automatic” renewal (at the licensee’s discretion) for another 50 years. Not a great deal for the brand if it can’t renegotiate until the 2080s.
Some recent news made me wonder if long license agreements are always a bad deal for brands. A few months ago TGI Friday’s and Kraft Heinz announced that they had entered into a perpetual extension of their historic and now 20+-year old licensing partnership. How to explain?
The answer appears to lie in the special strength of this partnership and the current disparity between the two partners’ need for cash. As for its strength, this deal gave both partners something they could not have achieved on their own. Kraft Heinz (which acquired Anchor Foods, the original licensee) gained new market share in frozen snacks and TGI Friday’s gave consumers a way to eat their favorite appetizers even when they stayed at home. But Kraft Heinz did something more than extend the agreement; it paid TGI Friday’s $140 million at a time when Friday’s needs to pay off long-term debt from COVID-related setbacks in the restaurant industry.
As in any transaction, I assume that both parties got something they wanted, and we can assume that Kraft Heinz used its leverage to pay less today than it would have paid in royalties over the life of the deal. We aren’t likely to see many more deals like this.
But what if we looked at this one-off not as a strict model of how to structure contracts than how to structure long-term partnerships? At least that’s how we look at food and beverage licensing at IMC, where we’ve represented some of the longest-lasting brands and structured some of the biggest and longest-lasting deals in this space.
Around the time Friday’s licensed its brands into frozen snacks IMC struck a deal between our client Southern Comfort and HP Hood to make what remains, 20+ years later, the bestselling premium eggnog in the country. And we brought together the Sweet Baby Ray’s brand with Bridgford Foods for a line of flavored beef jerky that has generated over $1 billion in sales (and is still growing) 17 years later.
Not every good partnership lasts forever, but IMC loves working with brands that have been around forever and striking deals that can be around forever, too. While we also like limited contract terms – which give both parties a chance to refine the partnership and focus on shared goals over the next 3-5 years – in other respects the deals might as well be endless. At least that’s our goal.
If you are a trademark owner and interested in long-term licensing partnerships, let’s talk. IMC is proud to share our “fewer, bigger, better” philosophy and learn how we can help support your brand.
