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McDonald's Blames Ads For Weak Sales, Puts Shops in Hot Seat

Trouble in McDonaldland: Chain Turns to Marketing to Restore Lost Momentum

By Published on . 9

As McDonald's feels the heat to increase sales, it's lighting a fire under the agencies that steward its $1.4 billion in U.S. marketing spending.

According to analysts who attended the company's biannual investor meeting last week, CEO Don Thompson said McDonald's is leaning on its agencies to step up their work. One analyst said the company has even expressed interest in reaching out to new shops. Its primary agencies are Publicis' Leo Burnett and Omnicom's DDB.

"We believe that some of the creative [national TV ads] that have aired in recent quarters in the U.S. have not resonated as well with McDonald's customer base as the company would like to see," said Janney analyst Mark Kalinowski in a note issued the day after the McDonald's meeting. "While this is not the only challenge McDonald's faces in the U.S., it is one of them, and to combat it there have been some internal personnel changes. We would also not rule out the possibility of ad-agency changes at some point."

A spokeswoman for McDonald's denied any agency shifts are being contemplated. "Our ability to be a leadership brand is in large part due to our partnerships with the best and brightest people in the industry, including talent from some of the top agencies in the business," she said. "To be clear, we have not put any of our national advertising agencies 'on notice' or into review. And we are not entertaining other agencies outside of our current national-agency roster."

She added: "At McDonald's, we demand a lot from ourselves as marketers and from our agencies to bring the boldest and best ideas and thinking. This is nothing new."

The chain has been under strain since its sales began decelerating in early 2012. In October of last year, McDonald's posted its first global sales loss in nine years. U.S. same-store sales were up 3.3% in 2012, but that lagged 2011, when U.S. sales rose 4.8%. Global sales last year rose 3.1%.

The company has been trying to pump up sales by rejiggering its marketing calendar. Last year it pushed its popular McRib from October to December, hoping to bump holiday sales because of tough comparisons from the prior year. It also urged franchisees to stay open on Thanksgiving and Christmas to eke out more sales, and reworked the 2013 marketing calendar to fit more dollar-menu and value marketing. Those moves frustrated franchisees as they began to feel a profit pinch.

That marketing calendar is now under the gun. Last week the company blamed too many menu introductions being rolled out too quickly for nagging customer-service issues. At the investor meeting, McDonald's executives said that between March and July it rolled out four products -- McWraps, blueberry-pomegranate smoothies, Egg White Delight McMuffins and its new line of Quarter Pounders -- at a pace that was too speedy and complex, which slowed down operations.

But that hasn't stopped it from pushing its McCafé platform as a priority. McDonald's is testing packaged coffee in select grocery stores, a move that executives at the investor meeting said they hope will sell more McCafé in restaurants.

Third-quarter same-store sales for 2013 in the U.S. rose 0.7%. Global same-store sales were up 0.9%.

Internal shuffling
The internal personnel changes referred to in Mr. Kalinowski's note likely include the departure of U.S. CMO Neil Golden -- the chain's stateside top marketer since April 2008 -- which was announced in September. In February, the company named Global Brand Officer Kevin Newell as U.S. brand and strategy officer, a new position that the CMO reports to.

Mr. Newell, a Leo Burnett and Burrell Communications alumnus, both on the McDonald's roster, is acting CMO as the company searches for a replacement. Marlena Peleo-Lazar continues to be the chain's chief creative officer.

The shuffling wasn't confined to the marketing suite. Last December, McDonald's named Jeff Stratton its U.S. president, replacing Jan Fields. In October, the chain named Atif Rafiq its first global digital officer.
While the recent domestic work of its agencies is largely seen as tepid, McDonald's has been doing well on the creative front globally. It was one of the top 10 marketers in Ad Age's Award Report, mainly on the strength of work in Australia and Canada.

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