McD's squeezes agency fees

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McDonalds Corp. is putting the squeeze on its agencies, asking shops to cut fees by as much as 25%.

The move comes amid the burger behemoth's second layoff in as many years. The marketer last week said it would slash up to 600 jobs and shutter 175 stores as part of a cost-cutting move.

Several well-placed executives close to McDonald's said the company has approached its shops about scaling back fees. "They're saying they have to tighten the belt," said one. Bill Lamar, senior VP-U.S. marketing, is said to have broached the subject with McDonald's roster shops in meetings with the agencies in recent weeks.

Omnicom Group's DDB Worldwide, Chicago, and Publicis Groupe's Leo Burnett USA, Chicago, the primary agencies on McDonald's $400 million-plus account, referred calls to the marketer. McDonald's called the report "speculation."

The request to its agencies follows McDonald's appeals in the last quarter to its owner/operators to boost the national marketing budget by as much as $70 million, mostly to support its Dollar Menu.

Despite a lackluster start, the Dollar Menu and value will dominate McDonald's 2003 calendar with at least six marketing periods and a large push in January for new breakfast items on the Dollar Menu, said the well-placed executives. October same-store sales were flat, but traffic grew slightly, something the chain hasn't experienced in a year. That glimmer of hope is enough to keep the Golden Arches focused on value.

An internal document obtained by Advertising Age from McDonald's Oct. 29 and 30 National Leadership Committee meeting indicates there will be more emphasis on the Dollar Menu in advertising creative, with more focus on Extra Value Menu combo meals pushed in the stores.

While celebrities won't be part of a long-term campaign, their use helps to break through clutter, according to the document. So far, the celebrity campaign that features Donald Trump, Cedric the Entertainer and Venus and Serena Williams have helped unaided awareness scores, up 18%. Aided awareness was up 48% while consumer intent to purchase rose 25%.

One senior executive said McDonald's aims to cut 20% from its general and administrative costs and is eyeing cuts in travel, training and other marketing costs as well. "We don't have a target percent," said the spokeswoman.

Agencies do not know how they will cut costs as their staffing on the accounts depends in part on McDonald's internal structures-and the company has yet to disclose layoff plans to the shops. "We won't discuss any specific reasons," said a McDonald's spokeswoman.

An insider, however, said the company will likely cut from the corporate and division staff and "keep the people closest to the field." Just over a year ago, McDonald's cut 500 to 700 jobs and downsized its regions. It restructured the executive suite in January and May 2001.

Advertising Age has learned that one executive leaving is Larry Chandler, who headed marketing research. The spokeswoman said he will stay on as a consultant.

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