Yum CEO Challenges Roster Agencies to Help It Boost Business in U.S.

Novak Calls on Draft, Ogilvy, Martin for 'Brainstorming Session'

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David Novak, the chairman-CEO of Yum Brands, is on a mission to lift sales at the restaurant company -- the parent of KFC, Taco Bell and Pizza Hut -- and is challenging his ad agencies to do their part.

According to multiple people familiar with the matter, Mr. Novak has circulated a memo to the company's lead creative agencies, calling for a "brainstorming session" that will involve its three main ad partners: WPP's Ogilvy & Mather and Interpublic Group of Cos. siblings DraftFCB and the Martin Agency.

David Novak
David Novak

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 brands.

The company will release its second-quarter earnings at market close today.

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