In a move that could cause controversy among franchisees and other agencies, DDB Needham Worldwide has quietly pitched a plan to handle McDonald's Corp.'s $150 million in local media buying.
The pitch was made the week of April 6 at the behest of McDonald's, which is looking for ways to cut costs.
While DDB Needham and McDonald's declined comment, one executive familiar with the pitch said: "It was for buying only. Planning and merchandising would stay at the local or regional agency that has that function now."
AT LOCAL SHOPS' DISCRETION
Another executive said each local agency would be able to decide whether to participate in the program, adding that DDB Needham's goal is to keep a "harmonious relationship" with local shops and franchisees.
A third executive with knowledge of the situation said McDonald's also has had discussions with Leo Burnett Co., Chicago, about pitching. Executives at Burnett declined to comment.
DDB Needham and Burnett are McDonald's national agencies; the fast-feeder works with about 40 other shops at the local and regional levels. DDB Needham's Optimum Media handles most national media buying, while Burnett's Starcom buys kids media. McDonald's spent about $400 million on national TV in 1997, according to Competitive Media Reporting.
Those familiar with the discussions said the key to soothing the concerns of franchisees and local agencies "is making this buying only, and keeping the merchandising and back-end added-value at the local creative shop."
For example, DDB Needham could negotiate and execute a media buy for a local promotion, while the local agency would handle creative and oversee planning and logistics for awarding prizes.
TEST IN ST. LOUIS
In St. Louis, McDonald's last year tested a plan under which the agency there, Kragie/Newell, handled local creative, Burnett did the buying and Fleishman-Hillard, St. Louis, handled added-value elements.
"That concept was disbanded by mutual consent, and that's not the idea here," said one executive familiar with the new concept.
Currently DDB Needham buys local media in New York, Los Angeles, Chicago, Dallas and Seattle; only its Seattle office, DDB Elgin, is a regional agency for McDonald's spot buying.
The other McDonald's regional agencies for creative and media are Arnold Communications, Boston; DavisElen, Los Angeles; Fahlgren, Dublin, Ohio; Kragie, Des Moines; and Moroch & Associates, Dallas.
McDonald's also uses about 35 other agencies in various local markets for creative and buying.
McDonald's discussions apparently don't involve a shift of spending from the local level to more national media.
"It's McDonald's looking to see if they can save 10% or 20% by consolidating on the local buying side," said one executive.
`A BIG MISTAKE'
But such a change would be "a big mistake," said one McDonald's franchisee who has been closely involved with local media buying. "It would be contrary to everything we've been signalled in the last year or so."
The DDB Needham presentation comes as McDonald's is pushing to cut costs at corporate headquarters. In releasing first-quarter earnings April 17, McDonald's CEO Michael Quinlin said the company is studying headquarters spending to "determine alignment, productivity and cost reduction opportunities." Results are due by June.
The company said U.S. same-store sales were relatively flat for the quarter compared with the same period a year ago. Overall, U.S. sales were up 3% to $4.1 billion, primarily due to restaurant expansion.
The pitch also comes just months after McDonald's adopted a new strategy of shifting more ad funds to local markets, a move loudly applauded by franchisees.
"I just can't imagine how [consolidating local media] is helpful to the local co-ops," said the franchisee. "The biggest thing we have going for us is local marketing. When you take that relationship away from the local media in the local market, you change the relationship with all those stations. All of a sudden, that local group is not very important."
Copyright April 1998, Crain Communications Inc.