The chains, troubled by weak sales and shifting ad strategies, spend a combined $552 million on advertising. "Everybody is under pressure at Tricon, so the agencies are under pressure," said one agency executive.
TBWA/Chiat/Day, agency for Taco Bell, is feeling the most heat. The chain's field marketing agency, FCB Worldwide, San Francisco, has been handed an undisclosed national project that could put the agency in line for the $206 million creative account.
But some believe Mr. Novak's ultimate goal is to consolidate creative for the chains at one shop. BBDO Worldwide is seen as the likely victor in such a scenario.
A Taco Bell spokeswoman said, " TBWA/Chiat/Day is our advertising agency." But other agency executives said the Playa del Rey, Calif., agency has not worked on the business for weeks. The agency declined comment.
Mr. Novak also has taken a hands-on approach with Y&R Advertising, New York, the agency for the $175 million KFC account. While three executives close to the situation claimed KFC is headed for review, Mr. Novak was in New York last week and met with Y&R President-Chief Creative Officer Jim Ferguson. He gave his blessing to a new branding campaign that will not feature the animated Col. Sanders character. The ads break in September.
While in Manhattan, Mr. Novak also met with BBDO Worldwide, the shop for Tricon's third fast-food unit, Pizza Hut. Agency observers said the ultimate goal for Mr. Novak, a former BBDO executive, is to shift both Taco Bell and KFC to favored shop BBDO. Mr. Novak referred calls to a spokeswoman, who refused comment. BBDO Chairman Phil Dusenberry said talk that the accounts would be consolidated at the agency was "blatantly, patently untrue. It's never been discussed. It's not going to happen."
FCB, creator of Taco Bell's earlier "Run for the border" theme, was the lead shop on Taco Bell until 1994, when it lost the business to Bozell Worldwide, Costa Mesa, Calif., and Richards Group, Dallas. TBWA/Chiat/Day was awarded the national creative account in March 1997, after which FCB won back the $200 million field marketing account from Bozell in November 1997.
Mr. Novak's roots with BBDO run deep. Early in his career, he was a copywriter at the shop then known as Tracy-Locke, Dallas, eventually rising to VP-account services on clients such as Pepsi-Cola Co. and Frito-Lay. About a year after he joined Pizza Hut in 1987, BBDO was awarded the business, winning it from Chiat.
Mr. Novak also was instrumental in bringing to Tricon a number of executives with strong connections to BBDO parent Omnicom Group, including KFC Chief Concept Officer Terry Davenport (a former senior VP on Pizza Hut at BBDO) and Pizza Hut President-Chief Concept Officer Mike Rawlings (former Chairman-CEO of DDB Worldwide, Dallas).
Pizza Hut's Chief Marketing Officer Randy Gier also is a veteran of Pepsi-Cola Co., where he worked with BBDO.
Observers said TBWA/Chiat/
Day has been the scapegoat for larger problems at Taco Bell. The chain has had little new-product or promotional news in the last year, and has yet to shake the negative effects of the failed "Star Wars" promotion from summer 1999.
Despite Mr. Novak's marketing mandate to concentrate on the food, the only new product launched under Kip Knight, Taco Bell's chief marketing officer since last July, has been an improved nacho chip, which observers said hardly drives traffic. A new tostada-pizza hybrid called the Crunchiza has been in test in Oklahoma City, but failed to excite either consumers or franchisees enough to put it through more rigorous tests, observers said.
That's in stark contrast to earlier marketing calendars, when the No. 1 taco chain supported launches of Gorditas and Chalupas and enjoyed popular promotions, such as the "Godzilla" tie-in that helped sell $35 million in talking Chihuahua toys. Advertising emphasis on TBWA/Chiat/Day's spokespooch also has tailed off in favor of giving food a starring role.
Tricon's results haven't sat well with Wall Street as its stock price dipped from a high of 73 7/8 in April `99 to its current close of 29 3/16, prompting parental pep talks and lower earnings estimates. The company is expected to release its second-quarter earnings July 18; Bank of America Securities is estimating same-store sales for Taco Bell to skid 5% for the month of May and second-quarter earnings to fall 2› below consensus.
The bank said same-store sales for the period ended in May are trending flat at Pizza Hut; negative in the mid-single digits at KFC; and negative 6% to 7% at Taco Bell. That follows first-quarter declines of 2% at Pizza Hut and 3% at KFC, and slightly positive trends at Taco Bell.
"The outlook for Tricon is tough," said Patrick Schumann, analyst for Edward Jones Co. "They have to do something significant to set sales rolling in the U.S. or try to grow internationally."
Contributing: Richard Linnett, Alice Z. Cuneo, Hillary Chura