BURNETT VOWS TO CHANGE ITS WAYS: MCDONALD'S LOSS MAY BRING STAFF LAYOFFS AT AGENCY

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Leo Burnett USA is promising changes in the way it does business in the wake of losing $300 million in McDonald's Corp. business.

While Burnett refuses to discuss the changes it's planning-which should be made public this fall-even the admission that shifts are necessary is surprising for the Chicago giant, which has steadfastly refused to acknowledge chinks in its armor.

Paternalistic Burnett hasn't cut staff despite huge account losses in the last 18 months, including United Airlines' $100 million business and the $100 million resignation of Reebok International, but now appears to be acknowledging there may be layoffs.

STAFF CHANGES UNCERTAIN

"It's still too early to say what staffing changes there will be as a result of the McDonald's decision," Chairman-CEO Rick Fizdale wrote in an internal memo dated July 29. Currently, there are about 300 people who have some contact with the McDonald's business, Burnett said.

But the kind of sea change that industry executives believe is needed at Burnett-such as expansion outside Chicago or a combination with another agency-doesn't appear to be in the cards. And while going public is a viable option, according to industry executives, the timing couldn't be worse given the agency's recent troubles.

"They'd have to be crazy to go public now," said an executive with a major Chicago agency.

An industry consultant maintained Burnett would make an attractive IPO because, even including its losses, the agency has strong lines of business and attractive assets, such as its headquarters building on Wacker Drive.

"For them to compete in the future, they have to have access to public cash, because they can't depend on the cash cow of Phillip Morris [Cos.]," said the consultant, referring to proposed tobacco marketing restrictions that will inevitably reduce the spending of its mainstay client.

Burnett said it's not considering going public.

"We're still committed to our private and independent status and concentrating the majority of our resources in one full-service location in Chicago," said a spokesman.

TINY SWIPES AT CHANGE

Burnett has made tiny swipes at change by opening 10 regional field offices, spinning off Giant Step Productions, its interactive unit, and partnering with Williams-Labadie, a healthcare agency.

Agency executives believe a direct marketing agency is a likely target, given the tobacco ad restrictions that could shift marketing dollars to that venue.

A combination with Chicago sales promotion agency Frankel & Co., which was once discussed, is still possible.

"The entrepreneurial spirit . . . is emblematic of some of the other business opportunities that Burnett is exploring right now," said the Burnett spokesman, who declined to comment further.

But shifts are coming slowly at Burnett. Last March, Burnett went through a boardroom ouster of former President-CEO Bill Lynch and Vice Chairman-Chief Operating Officer Jim Jenness, claiming the change would boost morale depressed by the leaders' financially driven management style.

"They said there were going to be big changes after Lynch and Jenness, and nothing's happened," said an executive close to the agency, claiming that since then morale has sunk even lower.

Although Burnett said it has netted $450 million in billings during the last year and a half, the majority are media wins or relatively small accounts. Walt Disney Co.'s Disneyland and Disney Cruise Line; Amoco Corp.; the New York Stock Exchange; and Coca-Cola's Minute Maid and Surge brands came aboard in 1996.

There were huge media windfalls, including the $200 million Miller Lite buying assignment (after creative went to Fallon McElligott, Minneapolis) and Procter & Gamble Co.'s $250 million print agency of record assignment.

$68 MIL TAMBRANDS WIN

Burnett also won the $68 million Tambrands creative account from P&G following its acquisition of the Tampax marketer.

There are growth opportunities among some newer clients. Eli Lilly & Co., which gave Burnett its $7 million Prozac account, is apparently considering a move into TV advertising, which could be lucrative. Walgreen Co., a media account that bills less than $20 million now, has the potential to become significantly bigger.

Burnett has become a favored agency of Coca-Cola Co., charged with executing its "Incredible Summer" promotion. Last month, it won the flagship Coca-Cola Classic account in Germany, with rumors that the agency might get the business in other countries.

Contributing: Mercedes M. Cardona, Laura Petrecca

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