Beleaguered McDonald's looks to local price effort

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McDonald's Corp., in a short-term effort to lift sagging same-store sales, called an all-day meeting Friday with its agencies and advertising board franchisees to fashion a local price program that inevitably will drain national ad funds.

The shift back to local marketing comes as McDonald's prepares to implement a decentralization plan that will divide the U.S. into regions and empower regional heads to make marketing decisions. That could take money from lead national agency Leo Burnett USA, Chicago, though the shop also handles a regional co-op.

DEMISE OF `CAMPAIGN 55'

The late-week meeting came just days after McDonald's ended the lunch and dinner versions of its disappointing "Campaign 55" promotion. The failed promotion was the latest marketing misstep by a company that had long prided itself on delivering a consistent marketing message but has veered off course in recent years.

At the same time, rivals--particularly Burger King Corp.--have successfully simplified and sharpened their own marketing strategies.

McDonald's moved most of its local media budget to national media three years ago but did an about-face last June, moving $150 million of its estimated $450 million budget back to spot TV.

Burnett is now said to be on the hot seat, as is Brad Ball, senior VP-marketing at McDonald's USA. Hoping to benefit are second national agency DDB Needham Worldwide and a half-dozen regional shops that would like nothing better than to gain the ear of a $32 billion brand that will spend roughly $1 billion on marketing this year.

BURNETT IS SPOOKED

McDonald's and Burnett representatives insist the relationship is stable, but Burnett insiders acknowledge the agency is spooked by the termination of "Campaign 55," and is well aware that Burnett has been McDonald's lead partner through two years of marketing programs that have failed to ignite sales at the chain's 11,000 U.S. restaurants.

Observers have also said the solution may not be as simple as blaming Burnett or Mr. Ball. Instead, they said that Big Mac, in trying to be all things to all people--offering convenient locations, friendly service, good value, consistent food quality and family fun--may be splitting itself in too many directions.

"For the past year, McDonald's has bounced around in terms of its marketing strategy, from last summer taking the high road with deluxe sandwiches to this year's pseudo price discount," said Stacy Jamar, restaurant analyst with Smith Barney.

ARCH DELUXE

Marketing programs before the Arch Deluxe didn't do much for domestic sales, either. According to Everen Securities analyst Dean Haskell, same-store sales at McDonald's were down vs. year-earlier periods for eight consecutive quarters in 1995 and 1996.

Despite lackluster marketing programs, analysts agree McDonald's is hardly a brand teetering on the brink. McDonald's maintains a 41.9% share of the $39 billion hamburger market, according to restaurant consultancy Technomic. Although Big Mac slipped half a point last year, while Burger King grew a point to 19.2%, McDonald's still commands twice the share of its closest competitor.

Big Mac's short-term plan is to get franchisees to accept temporary price promotions, one insider said, and to boost spending behind breakfast "My Size Meals."

McDonald's last week said customer response to the 55¢ program at breakfast was "outstanding."

The program was successful at breakfast because it boosted purchases of combo meals during that daypart, raising average checks, said David Trossman, restaurant analyst with Alex. Brown & Sons. But at lunch, where customers were already programmed to buy Extra Value Meals, "My Size Meals" only allowed them to trade down to a cheaper combo, Mr. Trossman said.

The program angered franchisees, who were told "Campaign 55" would drive traffic and incremental sales. Instead, it merely confused customers, who couldn't quite tell where the deal was.

"It's a price promotion that doesn't tell you the price," said Ron Paul, president of Technomic.

REGIONAL SHOPS PITCH

Regional agencies won't likely make a run for national creative assignments in the coming months, but are counting on McDonald's to move more media weight back to local marketing.

Regional shops already have begun pitching Big Mac on ideas for regional discounts, promotions and new products, said one executive.

Correcting operations is as pressing a problem as fixing the marketing, analysts agree. Making sure McDonald's current offerings are served hot and fast in a clean restaurant is more important than any TV commercial or new product, said Technomic's Mr. Paul.

Contributing: Laura Petrecca, Pat Sloan, Judann Pollack

Copyright June 1997, Crain Communications Inc.

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