Beginning last year, franchisees upset at slackening domestic sales stepped in to control their own destiny at some of the country's largest quick-service restaurants-including titan McDonald's Corp.-demanding local advertising spending shifts.
Tensions rose between franchisees and the corporate offices as many of the top 10 chains accelerated plans for company-owned satellite units that would compete with existing franchisees. Soft sales also contributed to a rash of agency shuffles among several fast-food players and put added pressure on new products to lift sagging results.
McDonald's posted an overall sales gain of 6.5% for the year, although much of the gain was international. Domestically, same-store sales were flat, prompting franchisees to push the parent company into pulling $150 million from national spending channels into spot TV, a reversal of McDonald's strategy to promote the brand on mass scale.
McDonald's opened 1,027 satellite stores last year, according to restaurant consultancy Technomics. In the next two years, 30% of new units will be satellites.
Franchisees pushed for a similar shift to spot TV in media plans at Subway Sandwiches & Salads after agency Hal Riney & Partners/ Heartland, Chicago, at the request of the parent, presented a plan for national spending. The franchisees screamed. Trapped between two philosophical poles, Riney may lose the account since a review has started.
Account changes rocked two other chains this year-Boston Market and Hardee's. Both dropped agencies of record for "virtual" agencies, the concept of spreading out account assignments to different shops.
PRESSURE ON BURNETT
Although a review isn't in the offing, pressure is mounting for McD's national agency, Leo Burnett Co. Burnett was passed over by Fallon McElligott as agency for Arch Deluxe, McD's biggest new-product launch since Big Mac. Burnett also lost a significant amount of national buys to local agencies and was embarrassed by an accounting error in its media department that cost McDonald's at least $20 million in media time.
What meager fast-food growth there was last year and this year can largely be chalked up to new products. Pizza Hut's Stuffed Crust Pizza-a $1 billion business for the PepsiCo unit-fueled '95 sales but excitement has died down to the point that net sales are off 5% in first-half '96.
The bright spot in the PepsiCo lineup was KFC, up 10% in first-half sales, powered by the $50 million campaign to support the rollout of its new product, Tender Roast. The roast chicken line, sold by the piece, has been a big hit.
ARCH DELUXE HYPE
McDonald's answer in new products was its $75 million ad blitz behind Arch Deluxe, described as "the burger with the grown up taste." While the jury is still out on Arch Deluxe, which also includes an upcoming chicken and fish version, spot checks of sales in the first few months indicate the burger isn't living up to the marketing hype.
McDonald's Arch Deluxe appears to have reinvigorated Burger King, which launched a $20 million campaign for the Whopper emphasizing its flame-broiled taste that has lifted traffic in the double digits, franchisees say.
Promotional stakes were raised earlier this year when McDonald's inked a 10-year deal with Walt Disney Co. for exclusive fast-food tie-in rights to Disney films.
The deal sent Burger King, a long-time Disney companion, scurrying to Dreamworks SKG for its "Jurassic Park" sequel.