McDonald's Corp.'s ambitions for Arch Deluxe were simple, if far-reaching: Devise a product that appeals to baby boomers; counters the chain's low-quality marks from consumers; and is positioned as a premium line to wean customers from margin-busting discounts. The result was McDonald's biggest product rollout since the Big Mac, backed by an estimated $200 million advertising and promotional extravaganza. The line today includes four sandwiches and ad campaigns from no fewer than five agencies. The initial product campaign, launched in May by Fallon McElligott, Minneapolis, featured images of kids grimacing at the new burger's supposedly "grown-up'' taste. McDonald's executives predicted that Arch Deluxe, created by former fine-dining chef Andrew Selvaggio, would become a $1 billion business in its first year. Although more than 100 million consumers tried the burger in its first eight weeks, a substantial portion was credited to an estimated $50 million in free-sample coupons. By the fall launch of the new Deluxe chicken and fish sandwiches, Arch still showed no tangible signs of boosting domestic sales performance. McDonald's maintains Deluxe sales have exceeded company plans, although it never disclosed specific target sales goals. Inflated expectations prompted McDonald's USA President Edward Rensi to send a letter to 2,700 franchisees in September, defending the burger and emphasizing that Deluxe was "never intended to be a silver bullet."
The year went from trying to desperate for Quaker Oats Co.'s Snapple brand, now reportedly on the block--if a buyer can be found. Michael Schott, who replaced the ousted Don Uzzi at Quaker's beverage division, moved quickly to fix the ailing brand with a new distribution system to service mom-and-pop retailers and plans for a major marketing splash, themed "Escape with Taste," for Snapple diet drinks in January. But there's no escaping Snapple's continuing red ink: Quaker reported volume fell 23% for the quarter ended Sept. 30, with sales of $512.6 million, 9% below last year. "Clearly, the biggest challenge facing the company is Snapple's disappointing performance," said Quaker Chairman-President-CEO William Smithburg, vowing to "put a floor under Snapple."
After spending millions in development, waiting years to get approval from the Food & Drug Administration and brushing off health criticisms from advocacy groups, Procter & Gamble Co. steamed ahead with its Olean fat substitute. The company started test marketing No-Fat Pringles in Columbus, Ohio, with no fewer than eight marketing advisors. P&G claims its test is going swimmingly, with 2 million servings or samples distributed in Columbus to date. P&G is also crowing that 12 more marketers have signed up to buy Olean from them for snack products, in addition to Frito-Lay, which wound up its six-month test of Olean-based Max chips in two of its three test markets. And P&G will test Eagle brand Olean snacks in early '97.
USED CAR SUPERSTORES
Used car superstores started shaking up the auto industry by encroaching upon traditional used-car sales at new-car dealerships. Major players include Circuit City's CarMax and Wayne Huizenga's AutoNation. Both chains, along with Driver's Mart and Carl Spielvogel's United Auto Group, have major expansion plans in 1997. Unlike traditional auto dealerships, customers at the new chains can compare a wide variety of makes and models with no-haggle prices and no pressure. Market researcher J.D. Power & Associates found CarMax is winning market share at the expense of new-car dealers with its first Atlanta and Raleigh, N.C., stores. With $275 billion in sales at stake in the profitable used-car market, car marketers have taken notice. Both General Motors Corp. and Ford Motor Co. started used-car test programs this year, which will go national in '97. In addition, Chrysler Corp. granted CarMax a new-car franchise, and Ford's credit subsdiary will be the primary retail financing source for Driver's Mart shoppers.
When Frito-Lay broke its $50 million campaign for Baked Lay's on Super Bowl XXX, there was no way to tell that within a month there would be nationwide product shortages. But that's what happened, with Baked Lay's considered one of Frito's most successful brands ever and projected to be a $300 million brand by early 1997. The low-fat proposition, together with the taste and a clever BBDO Worldwide campaign featuring supermodels gobbling the chips, combined to create arguably one of the year's blockbuster new products. Later in the year, Frito added porcine puppet Miss Piggy to its spokeswoman lineup and paired her with the super-slim supermodels.
Smoking-cessation gum and patch therapies became the latest major prescription crossovers as the government debated regulating tobacco. SmithKline Beecham Consumer Care's Nicorette gum was the first product to go over-the-counter in February with a $40 million campaign from Jordan, McGrath, Case & Taylor, New York. While Ciba-Geigy Corp.'s Habitrol got held at the gate, Johnson & Johnson's Nicotrol and SKB's NicoDerm CQ patches were not far behind with over $70 million in spending among them. It didn't take long before the competing patches began blowing smoke at each other. The latest product comparison imbroglio was taken to court in December by SKB, angry over information in professional print ads from Anderson Advertising, Toronto, and sales materials J&J provided on NicoDerm CQ.
With 7 million subscribers on board, America Online was the first commercial online service company to hit $1 billion in revenues. The company continued to stretch its lead past both CompuServe and Prodigy Services Corp., both of whom suffered under the control of parent companies before management reengineerings gave them new direction. AOL is now considered the first online player to make cyberspace a mass market. It also invested heavily to promote itself: during 1996 AOL played with a $333 million marketing budget, $100 million of which went to a TV branding effort, from TBWA Chiat/Day, New York, set to "The Jetsons" theme song. Yet AOL had its share of negative publicity. In August, the service was down for 19 hours because of a software glitch. And a revised pricing plan implemented this month, giving subscribers unlimited access for $19.95 a month, caused a surge in usage--and many user complaints about being unable to access the service.
The folks at Warner Bros. Consumer Products like to say that "sports is entertainment." "Space Jam" proved that position to be a very lucrative one. Warner Bros.' "Space Jam" was the fairy tale version of basketball superstar Michael Jordan's return to the sport after a brief flirtation with pro baseball. In this tall tale, Mr. Jordan regains his love for hoops after saving his Looney Tunes pals--Bugs Bunny, Daffy Duck, et al.--from enslavement by an other-worldly amusement park owner. The movie grossed $30 million in its opening weekend and has raked in over $75 million to date. The launch was aided by a $70 million promotional push, led by McDonald's Corp. But "Space Jam" was also, in the words of Time-Warner honcho Gerald Levin, "a merchandising event," designed to propel its $3 billion "Looney Tunes" franchise. Product from 200 licensees hit weeks before the movie's release and proved hot. Warner Bros. Consumer Products expects "Space Jam" to generate $1 billion at retail in the next year. The movie will probably be the first of more "Looney Tunes" films; the studio is producing another film starring Bugs that's said to sport a small role for Mr. Jordan. Whether the athlete will make acting his next career, however, remains to be seen.
The wireless market is exploding. Industry analysts estimate that 14 new million cellular phones will be sold this year, and the number of wireless phone subscribers in the U.S. is expected to grow from 39 million now to 73 million by 2000. Some cities like New York, Chicago and Los Angeles already host at least five competing services, including such brand titans as AT&T Wireless, MCI Communications Corp. and Sprint PCS. But many new players have joined the race. PrimeCo Personal Communications, an alliance of AirTouch Communications, Bell Atlantic, Nynex and U S West Media Services, is one of the industry's newest and largest entrants. The company just launched a major $50 million ad campaign in 16 markets across the country. Analysts predict ad spending in the wireless market to increase three-fold in the coming year.
The publishing world was astounded in July when Newsweek's Joe Klein revealed that he wrote "Primary Colors," the bestseller with the anonymous author. The work of fiction was seen as a thinly disguised story about the Clinton presidential campaign, which Mr. Klein was supposed to be covering objectively for the magazine. His reasons for hiding his authorship were apparent. The revelation triggered a fiery reaction. For one, when New York had earlier fingered Mr. Klein as the author using a literary analysis expert, the writer denied the claim. Worse in the eyes of most journalists was the sin committed when the "Periscope" column of Newsweek had also speculated on the true identity of the author--and had pointed at someone other than Mr. Klein. Clearly Mr. Klein appeared to be letting a colleague run with bad information. Compounding that sin: Newsweek Editor Maynard Parker had been cued in by Mr. Klein from the start of his literary efforts. That means Mr. Parker deliberately let an article with incorrect information appear. As one veteran editor pointed out, "We make enough mistakes on our own without publishing stories that we know are false." Finally, in July, Mr. Klein came clean--and was promptly suspended from Newsweek, as the upper brass said the situation was clearly mishandled. Yet there seems to have been little long-term impact. By yearend, Mr. Parker appeared to have weathered the journalistic crisis, and Mr. Klein was brought back after only a one-week suspension but with a reduced title and less responsibility. He was later snapped up by The New Yorker. And on the ad front, the magazine seemed likely to win the category ad-page crown among weekly news magazines for the first time in nine years.
Copyright December 1996, Crain Communications Inc.