McDonald's Demands in Agency Review Go Beyond Working at Cost

Why This Is No Ordinary Review

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It's a potentially huge win, both in prestige and scope: The consolidated U.S. creative account for McDonald's Corp., which threw open a holding company review not just to Omnicom Group and Publicis Groupe, owners of its existing shops, but also to WPP. Yet less than two weeks later, WPP -- whose chief executive, Martin Sorrell, would like nothing more than to steal a major account from his rivals -- withdrew from the contest without public explanation.

Yes, there was a tight 60-day turarnound from the late April release of the request for proposals until the final presentation at the end of June. And yes, incumbents in that case have a clear advantage over those who don't already work on the business directly. Still, why would WPP back out so quickly?

WPP isn't saying, but according to several people familiar with the situation, this is no ordinary review. In fact, they said, the stipulations in the McDonald's pitch are not only unusual but onerous. First, the RFP stipulates that the agency will operate at cost, essentially breaking even, the people said. There is the potential for some profit incentives should the shop meet certain market metrics (likely sales-based) but also more subjective metrics established by McDonald's.

Second, they said the marketer is insisting on a restrictive conflict clause -- that any agency in the pitch cannot have conflicts in food retail, including convenience stores. These people also said that agencies with clients who are competitors of Coke may also be at risk, as Coke has a massive distribution deal with McDonald's.

Third, these people said the scope of spec work goes well beyond what's typical in a pitch -- especially one in which the turnaround is only 60 days. Participating agencies have been instructed to create ideas off several briefs, according to people with knowledge of the matter. Typically an agency will create ideas for one brief, though two is not unheard of.

The fast-feeder's RFP itself lays out the need for change and transformation, to become modern and work in new ways, said these people. But the briefs seem somewhat disjointed and siloed in that McDonald's has asked for different executions for social and TV, for instance. And agencies are being told to work with the existing "I'm lovin' it" tagline.

"The way you have to look at it is that when you combine all these parts into a single pitch, it becomes absurd," said one person familiar with the review. "Is 60 days alone unfair or unheard of? No. But is it unfair with multiple briefs? Absolutely. Doing all this just to operate at no profit? Absurd. In aggregate, it's ridiculous. They haven't done a single thing to offer any respect to the agencies. Nothing."

Asking a creative agency to operate at cost is highly unusual, if not unheard of, and could potentially set a precedent. A client paying an agency only at cost is "not a predominant practice used to any degree," said Tom Finneran, exec VP-agency management services at the 4A's. Incentive programs have been around for years, of course, but they typically supplement a fee that guarantees the agency a profit.

So why would agencies agree to a review that could prevent them from making a profit on the business or compromise existing clients that might be paying them much more?

Neither DDB nor Leo Burnett, the incumbents on the account, would comment. But one agency executive not involved in the review said "the terms are so outrageous that it signals they are negotiable." Other agency insiders said it's not that uncommon for a shop to agree to stiff terms at the beginning of a review and then negotiate them into a more palatable form later on.

McDonald's did not respond to requests for comment.

Whether McDonald's terms will stick will play out over the coming months. Both Omnicom and Publicis Groupe appear to be pitching as holding company solutions, rather than solely relying on DDB and Leo Burnett, respectively.

Omnicom is bringing in people from across its network and from different countries, according to people familiar with the review, a move that could result in a bespoke agency. Publicis is going into the pitch with Leo Burnett leading, but with other resources being pulled from the holding company network.

With only the two incumbents left to duke it out, it's possible they will negotiate against each other until the very end -- which could be as late as the end of the summer -- rather than having one clear winner following the final presentations.

Many in the U.S. agency market are also flummoxed by the choice of consultant, a British firm called Flock, an unusual choice for a U.S. review. Captaining the review at Flock is its founder, Simon Francis, a longtime agency executive who worked at Aegis, Saatchi & Saatchi and OMD, the last of which handles McDonald's media both in the U.S. and overseas. OMD won the global account in 2003.

McDonald's CEO Steve Easterbrook, who joined McDonald's in the '90s, was named CEO of McDonald's U.K. in the mid-2000s and later elevated to president of McDonald's European operations. In the mid-2000s Mr. Francis was a senior executive at OMD Europe, but it's not clear if the two knew each other. In the early '90s Mr. Francis did a stint at Leo Burnett.