McDonald's Hits Record Revenue but Shakes Up Agencies

AKQA, Just Kid, Arnold and Moroch All Winners in New Plan

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CHICAGO ( -- Even as it revels in its best performance in decades, McDonald's is undergoing a $1 million to $2 million global-brand-strategy study and shifting national
In an effort to keep ahead of the curve, Mary Dillon, exec VP-global marketing officer, has retained Omnicom Group's Interbrand to conduct a major study of consumer trends.
In an effort to keep ahead of the curve, Mary Dillon, exec VP-global marketing officer, has retained Omnicom Group's Interbrand to conduct a major study of consumer trends.
creative duties on its largest business -- the $100 million breakfast account -- to ensure it doesn't "take its eyes off the fries."

Remarkable turnaround
The Golden Arches is now in its fourth year of a remarkable turnaround, and it is aiming to keep the momentum. Last month, the marketer reported record-high revenue of $21.6 billion and doubled profit for 2006, and posted strong 5.7% global same-store sales amid spotty results for its restaurant-category peers. Mary Dillon, exec VP-global marketing officer, tapped Omnicom Group's Interbrand to conduct the study intended to keep McDonald's abreast of consumer trends.

"We're refreshing and sharpening our overall brand strategy," she told Advertising Age. "Consumer needs and attitudes change every day, so we have to be out ahead of it."

Interbrand isn't the only new shop on the roster. In November, Ms. Dillon tapped consultant Just Kid, Stamford, Conn., to garner intelligence on global youth trends, as well as AKQA, San Francisco, to develop a global digital strategy for the chain.

Brighthouse, Atlanta
Ms. Dillon also met with branding and ideation shop Brighthouse, Atlanta, which was considered for the work Interbrand will conduct. She said, however, it was to be determined whether Brighthouse, as one executive close to the company said, would develop creative strategies based on the Interbrand study. Ms. Dillon, who is spearheading the project with senior VP-global marketing Peter Beresford, said only that Brighthouse will "possibly" play a role in the future.

No agency assignments are expected to be influenced by the study, at least initially, but it is worth noting that when McDonald's crafted its last strategy, "Plan to Win," and came up with a new "brand architecture," there was a shootout to come up with a global ad platform. The result was DDB-backed Heye & Partners in Germany winning the assignment to create the global "I'm lovin' it" campaign.

There is another shift of sorts afoot as McDonald's quietly reassigns its U.S. national breakfast business from DDB, Chicago, to two of its largest field-marketing agencies: Havas' Arnold Worldwide, Boston, and independent Moroch, Dallas.

"They've been doing breakfast for the shell program [advertising templates crafted with built-in spaces to be customized for local markets] since we've been doing it, and I've run some of their breakfast creative nationally before and this time decided to give them the full breakfast assignment," said Bill Lamar, chief marketing officer for McDonald's USA.

Impact on DDB
The move will do no favors for DDB, which is perceived as struggling at present, after a slew of clients defected in '06. Still, the marketer was quick to say the move had no larger meaning.

"We're not sending any message to any agency," said Neil Golden, VP-marketing for McDonald's USA, who categorized the shift as routine. "DDB has been doing terrific work for us." But in an industry where agencies are measured by their roster position and services are often nearly given away to high-profile marketers, the promotion of a co-op agency to national-agency status carries a value beyond the agency fees.

McDonald's spends more than $100 million a year promoting a morning menu that now accounts for as much as 30% of annual sales. In fact, the marketer spends more on breakfast than it does on burgers, according to one executive close to the marketer. With Burger King, Wendy's, Starbucks and Dunkin' Donuts vying for a bigger bite of morning sales, McDonald's has motivation to defend its turf.

Local experience
"This is less about shifting and more about ensuring we're aligning a piece of our business with the organization best capable to handle it," Mr. Golden said. Having two shops with local experience "strengthens our ability to understand the nuances" of the breakfast market, he said. "We believe there is a better way to handle strategic planning and integrate what we say and how we execute creative as it pertains to breakfast." Both Moroch and Arnold referred calls for comment to the marketer.

Indeed, since consumer tastes and habits for the morning meal vary by region (see chart), McDonald's has relied heavily on its local markets for promoting the daypart, with national media giving it an added boost. Combined, Arnold and Moroch handle about half of the chain's co-op markets in addition to the shell creative. In the course of a year, they may produce dozens of TV spots and hundreds of radio spots. Company insiders have dubbed the two agencies "Arnroch."
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