Transcript of Food & Restaurant Podcast – Does this Sandwich Offer Make Starbucks a QSR?

Transcript of Food & Restaurant Marketing Podcast – Episode: Does this Sandwich Offer Make Starbucks a QSR?
Starbucks, sandwich, LTO
The sandwich combo LTO that sparked this chat.

[00:00:06] Adam Pierno: Welcome back to another episode of Food and Restaurant Marketing. Once again, with me is Mr. Daniel T. Santy.

[00:00:18] Dan Santy: Hello.

[00:00:20] Adam: We have a fun topic today because we are experts in restaurant marketing, but we are also consumers of restaurant marketing. This topic came up pretty organically over the long weekend with some exchange of some texts and some kind of quippy humor, and also sparked from a conversation about a post that we published a couple weeks ago about a brand that you might have heard of. It’s a new upstart. What’s it called again, sir?

[00:00:48] Dan: I think it’s called Starbucks.

[00:00:51] Adam: That’s correct. That’s correct. Yes, Starbucks. I always get it mixed up. It is a fantastic brand and we will definitely link to the original post that relates to this, although is not 100% related to this conversation, but they’re loosely siblings to each other, I guess. It’s interesting because I got a text from Dan and we both kind of shared a chuckle. Go ahead and tell them what you sent me.

[00:01:19] Dan: I was in Instagram, my Instagram. That’s a social media platform.

[00:01:25] Adam: [laughs] I’ve read about it.

[00:01:29] Dan: That at an ad for Starbucks that has– what’s their small coffee called?

[00:01:36] Adam: Tall.

[00:01:37] Dan: Get a tall and a breakfast sandwich for guess what price point; five dollars, the famous QSR price point.

[00:01:45] Adam: The five-dollar-foot-long.

[00:01:46] Dan: Yes. It’s been around forever now.

[00:01:48] Adam: Yes, and I was pretty surprised too. The visual did not lead with the coffee. The coffee was background to the breakfast sandwich. If you changed the colors out, it could’ve looked like a McDonald’s ad.

[00:01:58] Dan: Right and they were pushing breakfast exactly as what the occasion that they were driving. So, I found it very interesting and then it wasn’t too much later that day that I was watching television and here comes a 30 on the same promotion. So, breakfast at Starbucks, five bucks, sandwich and a tall coffee.
I was so fascinated because the brand really hasn’t used television very extensively number one. Number two; when they have used it they’ve really promoted more their high-end brand or clover or different high-end beans and so forth, which makes sense because it’s on brand with who they are and who they’re continuing to want to be as a luxury brand. But to see them pushing a five dollar price point was fascinating, I thought what was equally fascinating is when I toured three stores only to discover that there is no POP in the stores; zero.

[00:03:01] Adam: We had some fun with the media that you saw on Sunday or Monday, but that was the big aha. I went into Starbucks today for another points challenge because I’m addicted to that game. I was looking around too knowing that you had seen all that media, which I haven’t seen anything, but when I opened up the app walking into the store, there was a promo for that same offer. In the store, though, I didn’t see any POP. The POP was still classic Starbucks, like high-end very brand–

[00:03:32] Dan: Yes, they were selling some latte [unintelligible 00:03:37]

[00:03:37] Adam: Yes, they have a new one that I can’t pronounce either [Editor’s note: It’s called Cascara]. I’m not even going to try.

[00:03:40] Dan: Right. [laughs]

[00:03:42] Adam: They always have a new latte that they’re pushing it seems like.

[00:03:46] Dan: I guess on the surface, I was startled because I thought, I wonder what’s happening from sales perspective. What’s the strategy behind this LTO if it’s indeed an LTO? Is this something they’re going to continuously push? But because they’re going head to head with McDonald’s obviously, and their huge push and huge success, I know Subway’s now doing breakfast. BK is doing breakfast.

[00:04:20] Adam: Taco Bell.

[00:04:20] Dan: Jack in the Box

[00:04:21] Adam: Everybody now is getting into the breakfast day part. [crosstalk]

[00:04:23] Dan: Yes. So, I guess you could argue based on that, that maybe all those brands were beginning to erode-

[00:04:31] Adam: Do you think? That’s my question.

[00:04:31] Dan: -traffic at Starbucks.

[00:04:33] Adam: It has to be a defensive move, right?

[00:04:36] Dan: Right.

[00:04:37] Adam: It has to be.

[00:04:37] Dan: Absolutely, yes.

[00:04:39] Adam: Because otherwise– that’s the day part they’ve been trying to build off of. They closed down their wine test that they were doing. They just shut that down kind of overnight. They gave up on that evening day part, which it was a noble effort. I wouldn’t have been surprised if they could’ve pulled it off, but maybe they’re just retrenching about on their craveable core like we’ve discussed in the past.

[00:05:02] Dan: Yes. I should’ve ordered it, to be honest with you.

[00:05:05] Adam: Just to see what the experience was?

[00:05:06] Dan: Yes, see what the experience was and to see if they even– to see whether the staff, the barista even knew about it.

[00:05:16] Adam: If they knew it was an offer or a special or something worth talking about, or if they just wrung it up and gave you a microwave sandwich.

[00:05:21] Dan: Yes. I also wouldn’t mind tasting it to see if it’s– to see what the quality is behind it, too, because I have a– excuse me, I have a high expectation for quality there. Food’s a risky business especially when you get it out of the package. I think they’ve done a good job with their packaged product that they have. You can pick up that snack box, obviously, the yogurts and some other things like that. But all over sudden when you’re doing prepared items that are getting microwaved, you just want to go–

[00:05:56] Adam: It’s not a good look. I don’t order the food there for that reason. I see them unwrapping it and I see them putting it in a microwave and it doesn’t feel like you’re saying. It doesn’t match my expectations of the high-end experience. I wonder how they’re planning to address that going forward or if they– I guess it doesn’t seem to bother them too much.

[00:06:17] Dan: Yes. It’ll be interesting to see what they do. Clearly, there must be a traffic issue.

[00:06:23] Adam: It’s got to be and to drive traffic to an item like food where they know there is a potential for a disconnect in the experience, that’s pretty interesting move, but it’s got to be a traffic and upsell move, right? Five-dollar combo?

[00:06:38] Dan: I guess, but think about this. Their margins on a latte are ridiculous, right? They’ve got to be.

[00:06:46] Adam: Right.

[00:06:46] Dan: So now all over sudden, your sending me to get a sandwich and we all know food and paper cost. Now, all of a sudden, you’ve got a whole another dynamic and food’s so much more expensive and the margin on food is difficult and you’re giving me a cup of coffee for five bucks. It’s a interesting play all the way around.

[00:07:06] Adam: Well, yes. It was a tall coffee. When was the last time you ordered a small coffee anywhere? I don’t think I’ve ever ordered a small coffee.

[00:07:15] Dan: Yes. No, I haven’t either.

[00:07:17] Adam: So, you’re upgrading that and contributing to the margin?

[00:07:20] Dan: You think maybe I’m getting that sandwich, but saying give me a Grande?

[00:07:24] Adam: Yes, or you’re turning that coffee– I think that’s a drip coffee. You’re turning that into a chai or something fancy.

[00:07:29] Dan: Maybe.

[00:07:30] Adam: You’re a fancy gentleman.

[00:07:31] Dan: I am very fancy.

[00:07:32] Adam: For sure.

[00:07:33] Dan: That’s interesting, Adam. I never even thought about that. I wonder how they would price that. We ought to test that. I want that five-dollar special, but I want a Grande.

[00:07:44] Adam: I bet you that’s what the baristas– if there’s any training, that’s what they’re trained to do. You sure you want a tall?

[00:07:48] Dan: Yes.

[00:07:49] Adam: You sure you don’t want a venti?

[00:07:50] Dan: Yes.

[00:07:51] Adam: Right? You sure you want a–?

[00:07:51] Dan: Or a Latte.

[00:07:52] Adam: Right, and just, “Cha-ching, cha-ching, cha-ching.” Because when you think about the original brand promise, when you were introduced to Starbucks, you weren’t introduced to it at a QSR level at all. It was this special experience. It was experience coffee.

[00:08:11] Dan: It’s experiential.

[00:08:12] Adam: The coffee house experience.

[00:08:14] Dan: Right. The whole concept was to come on in, relax, as you pointed out in your article, get yourself a cup of coffee, sit down, relax, visit with friends, use their free wi-fi–

[00:08:26] Adam: Spend time.

[00:08:27] Dan: Yes.

[00:08:27] Adam: Spend time, but now the question that I’m asking is with– you start out with this exclusive experience. You start out with this perceived luxury where I feel like I’m treating myself. Now, we’ve moved so far towards mass acceptance. I mean, there are honestly places where– who we were just talking to that was telling us there was a place in Portland where there were three Starbucks on a four-corner street?

[00:08:52] Dan: Yes, exactly.

[00:08:55] Adam: They’re so mass, it can’t still be luxury. So, now when I see QSR messaging, I really get curious about what they’re thinking about strategically inside there.

[00:09:06] Dan: Yes. I think that they’re probably– there’s got to be stress. There just has to be stress. The brands matured significantly. There’s so much competition especially from the independents. Let’s face it; the hipsters, the Millennials, they tend to really like to support local. There’s about a push for local. American Express does that at the holiday [crosstalk]

[00:09:35] Adam: Yes, Small Business Saturdays.

[00:09:37] Dan: Small business. So, all of a sudden, there’s a lot of push-back for a big massive chain like that and the ubiquity of it.

[00:09:46] Adam: Well, let’s take that fork in the road. Would you expect then because I’m thinking of places locally around here like Cartel or other places here in Arizona, there’s also Blue Bottle which is like a bigger chain. There’s a lot of places that are more–

[00:10:02] Dan: Dutch Bros.

[00:10:03] Adam: Yes. They have a more local, cult feel to them than Starbucks, which is your mass brand, your McDonald’s of the coffee industry. So, they have two choices; they can just say, “We’re the guerrilla. We are the McDonald’s of coffee, get on board. We’re everywhere. You can’t avoid us.” Or they could try to figure out how to make themselves seem smaller. They could camouflage themselves as a smaller brand, but it seems like this is a very QSRy [Editor’s note: QSRy is definitely not a word] offer.

[00:10:33] Dan: This is just saying, “We’re the gorilla and we’re going to keep going down this path and act that way.” They might be winning or surviving, or thriving because we don’t have their numbers, obviously, by sheer mass, by volume. Convenience is their big play today to your point about that Portland corner. Maria and I were in San Francisco and there was one directly across the street from the other.

[00:11:04] Adam: Right. Right, exactly.

[00:11:05] Dan: You see that a lot, especially in the major metros where there’s a lot of walking. But all of a sudden, it really becomes– it’s not a choice, it’s a convenience. It’s like when I set a meeting with somebody and they want to go have a cup of coffee, typically it’s like, “Well, let’s meet at that Starbucks at the corner of.” So, it’s just convenient.

[00:11:25] Adam: You almost could name any corner and there is actually a Starbucks there, whether you knew it or not.

[00:11:30] Dan: That’s exactly right.

[00:11:31] Adam: I think that’s true.

[00:11:32] Dan: That’s exactly right.

[00:11:32] Adam: Well, do you think that’s a negative? That it’s so ubiquitous, that I say, “No, no let’s go somewhere else. Let’s go somewhere special. Let’s go– meet me at this place. Meet me over here, or let’s do something else.”

[00:11:47] Dan: I know McDonald’s doesn’t exactly parallel this, however, McDonald’s is just now eking themselves out of a long-term traffic problem they were having. They were convenience play, right? Because think about the sheer number of stores that they have.

[00:12:05] Adam: And locations. They’re the A, A, A, real estate.

[00:12:08] Dan: Always, always.

[00:12:09] Adam: Easy on, easy off.

[00:12:10] Dan: They’re upgrading all those locations, too, to make it easier for drive thru. So, they’re really upping the convenience play there, but that’s what I mean is that McDonald’s got there, and now they’ve had to really reinvent themselves to win back customers. The breakfast day part was huge, a big play there. They’re obviously doing variety things, but I wonder if they’re not really damaging the brand with this strategy. It doesn’t seem to make sense to me.

[00:12:42] Adam: Something’s weird with both of those because McDonald’s had great luck when they launched all day breakfast, but it’s cooled off now they have a traffic problem again. That’s kind of a relapse of a traffic problem, if you will.
As people adapted and said, “Okay, I’ve had an Egg McMuffin at 2:00PM. That’s not interesting anymore.” So, they’re sort of probably retreating back to pushing breakfast at breakfast time, and Starbucks is saying, “No, no, no. We’re going to– you gave up this spot, we’re going to try to hold it.”

[00:13:09] Dan: It’s not a defensible competitive advantage, breakfast offerings.

[00:13:14] Adam: It’s not.

[00:13:15] Dan: Everybody just followed suit.

[00:13:16] Adam: No, and you could go to–

[00:13:17] Dan: Boom, boom, boom.

[00:13:17] Adam: I can go to QuikTrip. I mean, you can get a pretty good breakfast almost anywhere. I mean, compared to a breakfast sandwich, it’s not hard. So, it’s–

[00:13:26] Dan: So, all of a sudden, they’ve got challenges that aren’t familiar to them.

[00:13:33] Adam: Yes, I think so. So, trying to get into that QSR space for Starbucks is not familiar to them at all. I don’t think it’s familiar to their core customer. I think their customer, in general, has obviously grown up seeing that stuff, but the customer that they covet, I don’t think is responding to that $5 offer.

[00:13:53] Dan: Right, because their core customer is that person who goes and gets that exact drink that they love, and get– you know, my ex-wife got the PITA, the pain in the– I called it the pain in the– yes.

[00:14:07] Adam: [laughs] Because you got that fancy drink and I need it shaken three times, and exactly 176 degrees.

[00:14:11] Dan: Exactly, and that’s their core. Think about the people that come in and just– they have their white cup with the green circle on it, and it’s the same thing they get every day, day in and day out. So, interesting play for sure.

[00:14:26] Adam: Well, they’ve been so successful at getting those people. With the way that they have leveraged that app to get people into, really into habitual visitation and going in and ordering that same thing. Now, it’s like, “I hit one button, it orders me yesterday’s order. I don’t even have to think about it.”

[00:14:44] Daniel: Is that right?

[00:14:44] Adam: Yes, it’s amazing. It’s fantastic.

[00:14:48] Dan: Yes, because you don’t have to talk to the barista, that’s why you like it. [laughs]

[00:14:50] Adam: I don’t have to talk to anybody. I’m not very social. If you’re listening, do not call me. You can leave me a voicemail, I guess.

[00:14:57] Dan: You know, one of the other things I want to talk about is related to this, just going back to the marketing. You know how much we hammer on the idea of craveable, right?

[00:15:08] Adam: Yes.

[00:15:09] Dan: That commercial, I didn’t go, “Oh my gosh. I got to get that.”

[00:15:14] Adam: I’m going to post the ad. I took a screenshot of it because actually I was a little bit put off. It looks like what you actually get, which is not how you do it. You’ve got to take some liberties when you’re talking about food and make it look craveable.

[00:15:28] Dan: Yes, where’s the cheese dripping off that thing or-

[00:15:30] Adam: Yes, it looks like it just came out of the microwave.

[00:15:31] Dan: -somebody consuming it, perhaps?

[00:15:34] Adam: Right. Maybe they’re easy on the eyes, as well. Male or female, I don’t care, but attractive to look at.

[00:15:40] Dan: It was none of that.

[00:15:42] Adam: Could it be a local offer that they’re just [crosstalk]-

[00:15:45] Dan: Testing in Phoenix?

[00:15:46] Adam: -10 zip codes?

[00:15:48] Dan: That’s a great point. I never thought about that, but maybe that’s why there’s no POP. Phoenix is a notorious test market for many, many brands, national brands.

[00:16:00] Adam: But we’ve seen it on TV. They’re too sophisticated. They wouldn’t miss that. It would be in the store if they wanted it in the store.

[00:16:08] Dan: They could be testing– maybe they’re just testing the offer, see if it has any measurable impact on traffic.

[00:16:20] Adam: Yes, that’s probably part of it. It’s definitely an interesting move. But now, it looks like they are in QSR mode. Let’s talk pricing. You brought up margins on coffee, and those margins used to be more ridiculous. Starbucks sort of hurt themselves by becoming so successful that the supply cost more money, so they cut their margins. I’m sure they do okay.

[00:16:44] Dan: I’m sure they do.

[00:16:46] Adam: But getting into that $5 game, and having like a meal offer, weird?

[00:16:52] Dan: Very, and dangerous. I think you said it. If the audiences tends to be a little more upscale and willing to spend that 3.50 to 5.50, whatever it costs to get their latte there, now all of a sudden you’re telling me I can have a coffee and a sandwich for less than my latte cost?

[00:17:12] Adam: Right, yes. What about the brand perception? Their value prop is not– the word value doesn’t belong anywhere near their value profits. You don’t go in there to save money.

[00:17:27] Dan: No.

[00:17:27] Adam: Right? Like Subway, a $5-footlong? Let’s go.

[00:17:28] Dan: You expect it. Right.

[00:17:31] Adam: Right? But I know what I’m getting into.

[00:17:33] Dan: You just put yourself on, I think, which is our point about this whole thing is you’re now putting yourself on par in a competitive space with QSR, which is a male 18 to 24-year-old [laughs] audience in spades.

[00:17:44] Adam: Yes, it’s not your audience.

[00:17:45] Dan: So, is that what you want? You want men 18 to 24 coming in the restaurant? I don’t think so.

[00:17:52] Adam: Well, let’s talk about the flip side of that because I hadn’t thought about it until you just said that audience, that demo. Are you going to compare favorably? If I go to McDonald’s and I get their coffee and whatever their breakfast sandwich is, and then I go to Starbucks the next day for five bucks, and I get their coffee which, in my opinion is better, and their sandwich, which probably isn’t all that much worse, does that $5 feel like a deal at that point? Does that change perception?

[00:18:21] Dan: Think about this.

[00:18:22] Adam: But it’s a small coffee versus a 20 ounce coffee at McDonald’s, probably.

[00:18:25] Dan: Right, there’s that, but then there’s the experience. So, QSR is known for, what? Being quick.

[00:18:33] Adam: It’s in the name.

[00:18:33] Dan: You could–
It’s in the name. I’ll give you three guesses. You can find yourself in a Starbucks and it’s not quick, because depending on what time of day it is, if you’re being driven in there for breakfast, it’s going to be morning rush hour.

[00:18:50] Adam: I mean, prepare yourself to stand there and wait with this rush of online orders.

[00:18:54] Dan: Really? That’s going to be an experience downfall for them-

[00:19:02] Adam: Great point.

[00:19:02] Dan: -if they drive traffic. So, if they do successfully drive a QSR– if they steal a QSR occasion, which appears they’re trying to do, then that QSR customer is going to go, “What is this? This isn’t–?”

[00:19:19] Adam: Right. I’m standing here waiting for 10 minutes for this thing to come out of the microwave. At least McDonald’s has the courtesy to hide the microwave behind the–
There’s nothing wrong with microwave breakfast sandwiches. We love them. It’s delicious. Well yes, but I think that offer in particular tells me they’re looking at the QSR model. The pricing tells me that. TV, as a medium, mass market, QSR model, I mean we’re just talking about-

[00:19:50] Dan: A hundred percent.

[00:19:51] Adam: -Burger King, it’s the number one driver for craveability, now they’re on TV. What did the TV spot look like?

[00:19:58] Dan: You know, it felt a lot like that Instagram post. It was like a voiceover with–

[00:20:06] Adam: Solid green.

[00:20:07] Dan: Yes, the camera moved towards the sandwich and the coffee and five bucks.

[00:20:14] Adam: I’ll find it on YouTube and try to post it with this, so people can see it and see what we’re talking about here but–

[00:20:22] Dan: Obviously, the production quality was fine, but there was not a lot of thought put into how to position that sandwich.

[00:20:33] Adam: The food styling.

[00:20:34] Dan: You’re right, and all of that. The audio wasn’t something about the ingredients and–

[00:20:42] Adam: Was it just a straight up? Come in and get a five dollar–?

[00:20:46] Dan: What I remember. Keep in mind, I’d be careful because I did just see it one time and I probably [crosstalk]
But again, it wasn’t– I think about what Carl’s Jr. does with that burger and all the QSRs. They show off that food we call the food porn. There was no food porn going on here.

[00:21:10] Adam: Yes. They aren’t trying to make it look like, “Just come in and get this deal. We have got to get rid of these sandwiches. They’re going to go bad.”

[00:21:15] Dan: [laughs] We got to get rid of these sandwiches.

[00:21:17] Adam: But what do you think of TV? You said earlier and I agree that when they’ve been on TV it’s been more lofty. It’s either been their packaged product or CPG kind of angle on Starbucks or brand. They’ve done holiday themed or like Frappuccino branding but they haven’t done, “Here’s your offer LTO stuff.” That’s it. They have the pricing. They have the offer and they have their on TV, the number one driver of craving, where are they going from here? Give me some prognostication.

[00:21:49] Dan: I think it’s going to fail, and the reason is what I was just talking about earlier. We know that television is a highly effective medium. So, if TV proves out in this scenario and does drive that occasion, I think the experience is going to not live up to expectations in terms of wait time to get the product and so forth and how I have to order and the environment I’m in, too. I think it’s flawed.

[00:22:25] Adam: So, if they get those people that they are trying to get–

[00:22:28] Dan: I don’t think you’re going to get it. I don’t think you’ll get the second occasion out of them.

[00:22:31] Adam: No, but I don’t think you’re going to win the Taco Bell audience that just defected from McDonalds and back again, and now back again, it’s not going to Starbucks to try.

[00:22:42] Dan: No way.

[00:22:43] Adam: They have to deep fry the sandwich in I don’t know, Frappuccino. I don’t even know what kind of gimmickry they would have to do to get that audience.

[00:22:50] Dan: Yes. They’d have to wrap it in some kind of chicken fried goo or something like that [laughs].

[00:22:55] Adam: Well, so much of this stuff– chicken, yes that sandwich. So much of this seems about novelty and there’s nothing novel about this, but it’s also not sophisticated. It doesn’t have the Starbucks like polish. Everything they do is really freaking polished.

[00:23:11] Dan: Everything.

[00:23:12] Adam: But this doesn’t.

[00:23:13] Dan: Again, I couldn’t pronounce the name of that latte because I went to three different stores and every store had that POP up promoting that new latte.

[00:23:22] Adam: Yes, you walk in and it hits your right there.

[00:23:23] Dan: Yes, it was on the door then it was right up above [crosstalk]

[00:23:26] Adam: It looks pretty good.

[00:23:27] Dan: It does.

[00:23:28] Adam: The appetite appeal on that is really well done.

[00:23:30] Dan: Right, right. But that’s their core, right? That’s what they do. That’s what they do well. It looked high-end to me. I looked at it and said, “That’s probably five bucks for one of those bad boys.” More power to them if they sell those because five bucks for that probably has a hell of a lot more margin than five bucks for a tall and a sandwich.

[00:23:50] Adam: Yes. I’m not kidding. I just was at Sunoco filling up my car and they had an ad, an A-frame in the parking lot that said “Our New Breakfast Sandwich,” and it looked better.

[00:24:03] Dan: Seriously?

[00:24:04] Adam: It looked better and I’m sure–

[00:24:04] Dan: Sunoco’s got a better–? [laughs]

[00:24:05] Adam: It’s like a roller dog. You know what I mean? It’s an AMPM, it’s not Sunoco, so I stand corrected. Still, though, the photography looked better. Not comparing the sandwich, the food product and the food product, or the experience. But just that food photo, I was like, “Hey, maybe I should go into AMPM and get the roller dog action here.” But I didn’t. I didn’t look at it and think it looked terrible. Starbucks going– it just doesn’t look like their brand.

[00:24:32] Dan: No. Again, it’s very fascinating. It will be interesting to watch. Probably we’ll be doing a follow up podcast on this.

[00:24:41] Adam: Yes, the stock price will be triple and it will be like, “Starbucks booming breakfast sandwich business.” It could have been predicted.

[00:24:47] Dan: Stealing shares from all QSRs.

[00:24:51] Adam: You can almost put it in writing. It’s going to happen. All right, well, I think we’ve covered this one. Thank you all for joining us. If you disagree, you’re wrong, but if you want to try to debate and have some fun with this topic, we would definitely love to hear from you. You can find us on Twitter @F&RM or you can email us Dan@foodandrestaurantmarketing or adam@foodandrestaurantmarketing. Thanks for listening.

[00:25:16] Dan: As always, eat well.

Transcriptions by Go Transcript.

sandwich, Starbucks, experience, brand, LTO, daypart

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Author: Adam Pierno

Adam Pierno has a one-of-a-kind perspective on restaurant and CPGs. He investigates the connections between strategy, media, digital and business goals employing social media listening, analysis and traditional consumer research to find meaningful insights for brands thinking about their futures.