People familiar with the memo said Mr. Novak expressed
discontent with the company's U.S. business results compared with
its international growth, and asked for agencies to assess the
causes and come up with solutions. Solutions may include anything
from untapped consumer trends to operations suggestions to
innovations in the fast-food category. Mr. Novak is also understood
to have inquired about what could be done on Yum's part to help
improve the creative work.
DraftFCB works on
Taco Bell and KFC; Martin handles Pizza Hut; and Ogilvy &
Mather handles pieces of Yum's international business. Just this
week Ogilvy won the Taco Bell account in India without a review.
(Taco Bell in India had been handled by WPP's JWT.) Ogilvy also works on KFC in India.
Despite Mr. Novak's missive, the company insisted to Ad Age that
its agencies are safe and that no review process is in the offing
for any of the brands. "We are having a strategy session with our
agencies together to discuss our business opportunities," said a
company spokesman. "All will be in the same room together and we
are not having a creative or agency review."
It is , of course, daunting for agencies to be seeing one
another's presentations to Yum executives. People familiar with the
matter said Mr. Novak has in the past called on agencies to offer
ideas on the business side of things, but the idea that they can
view one another's presentations of those ideas is new.
Yum's U.S. unit is not growing at the rate the company's
international business is . The company's U.S. division in 2010 had
same-store sales growth of 1% -- driven by growth of 8% at Pizza
Hut and 2% at Taco Bell, and offset by a dip of 4% at KFC. And
while 2010 international same-store sales were flat, same-store
sales in China grew 6%.
But first-quarter U.S. same-store sales declined 1%, with an
increase of 1% at KFC, flat sales at Taco Bell and a decline of 3%
at Pizza Hut. International same-stores sales grew 2% in the first
quarter, with China growing 13%.
In Yum's first-quarter earnings release it noted: "Taco Bell
began the year with strong sales momentum and grew same-store sales
4% in the first period of the quarter. However, due to false claims
made about our food quality that resulted in negative publicity, we
saw a significant reversal in sales trends."
Although a lawsuit leveled against Taco Bell for allegedly
serving fake beef was withdrawn, franchisees have been vocal about
their dissatisfaction with their agency. An April memo from the
Taco Bell Franchise Management Advisory Council (Franmac) detailed
14 grievances the franchise council had with the business operation
of Taco Bell, including the desire to reassess DraftFCB's work on the account.
At the time of the Franmac memo, Taco Bell CMO David Ovens told
Ad Age : "We are very pleased with our longstanding agency
partnership and have no plans to make any changes, as we're
completely focused on building the business."
Martin's Pizza Hut account appears to be relatively stable as
well, given that the marketer recently consolidated digital and social-media marketing, along
with the standing creative account, at the Interpublic shop.
Yum in January announced it was selling A&W and Long John
Silver's in an effort to focus on aggressively growing overseas as
well as growing sales in the U.S. on the three remaining
The company will release its second-quarter earnings at market