As McD's New President Works to Lift Sales, Will Marketing Come Under the Microscope?

Stratton Has Put in Four Decades at Fast Feeder, But That Doesn't Mean He Won't Push for Change

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McDonald's new U.S. president, Jeff Stratton, scaled the Arches from crew member to global chief restaurant officer. So when he assumes his new post Dec. 1, it's fair to assume the 40-year company veteran won't make any major changes to the company's marketing or agency roster, right?

Don't be so sure. Agencies and analysts are watching closely to see what action Mr. Stratton, whose expertise lies in restaurant efficiency, improving customer transactions, design and remodeling, may take to reverse McDonald's sales slide.

Jeff Stratton

"They have aging stores and a much-intensifying competitive set in terms of innovation, store design and … marketing," said one agency exec familiar with the fast feeder's advertising. "Something is going to have to happen -- either changes to the marketing management, to the current agency roster or investing in their stores or all of it. The status quo is not going to work."

Mr. Stratton is taking over for Jan Fields, who leaves the company as McDonald's reports its first monthly global sales decline in nine years. The chain's U.S. monthly sales have been decelerating since February, when this year's sales peaked with an 11.1% same-store sales increase. Company watchers pin the blame in part on lack of innovation and increased pricing of McDonald's food.

The ouster of Ms. Fields has nonetheless prompted concern among the chain's agencies, in part because of what it could mean for marketing execs at McDonald's, which was the nation's 24th-largest advertiser last year with $1.37 billion in U.S. marketing spending, according to Ad Age 's DataCenter.

The Arches has seen little change in agency roster in some time; competitors such as Arby's , Taco Bell, Wendy's and Burger King, meanwhile, have all been busy tweaking theirs. Some are questioning if the other big red shoe might drop if sales continue to decline.

Much of that will depend on if there is any shift in the role of U.S. Chief Marketing Officer Neil Golden, who oversees agency relationships. There is no indication that those will change in the near term. People close to McDonald's say that Mr. Golden and Mr. Stratton have a close working relationship.

But it's also clear that Mr. Stratton, who has been charged with overseeing the continuing restaurant-remodeling project expected to boost sales, will need both a longer-term bet to improve the company's bottom line and a plan to win back sales in the near future. Marketing could come under the microscope if sales don't tick up.

A spokeswoman for McDonald's wouldn't comment on marketing and sales specifics, and said only that the chain "[has] a strong plan in place for the rest of the year and into 2013 that will offer our customers the great menu choices, experience and value they expect from McDonald's."

The chain is looking to put an even stronger emphasis on value messaging and is reworking its marketing calendar in the early part of next year to reflect that , according to executives close to McDonald's. The fast feeder's lead agency is Omnicom's DDB, Chicago, which declined to comment.

McDonald's already revamped marketing plans this year. To drive fourth-quarter sales, it moved the promotion of the McRib to the latter half of December and marketed its premium Cheddar Bacon Onion Angus burger and a similarly dressed chicken sandwich in the McRib's original October window. McDonald's has also rolled out more limited-time items this year, but analysts say some of them, such as the Cheddar Bacon Onion burger, have not met sales expectations.

To generate more traffic, McDonald's in recent months has been promoting dollar-menu items such as the McDouble. But some industry analysts are skeptical that will make much of a difference -- mostly because it's been tried before to little effect. "There's nothing they can do in terms of marketing for the near-term. They're already doing it -- value -- and it's not working. They need a new plan," said Howard Penney, managing director at Hedgeye.

Morningstar analyst R.J. Hottovy said it's possible that McDonald's ran into sales problems because its innovation pipeline has been relatively small compared with previous years'. A few years ago, McDonald's made a huge menu expansion push with its McCafé line of coffee and espresso-based drinks, which has been in regular rotation in McDonald's marketing since.

"They have to get back to focusing on their core business, because beverages is done," said Mr. Penney. Meanwhile, chains such as Wendy's , Burger King and Taco Bell have all given McDonald's more competition this year, pushing new items heavily in their marketing, which helped all three out of sales slumps.

In fast food, new items are important because they give the chains something to promote . But offering too many new items can be problematic. "Ray Kroc knew McDonald's couldn't be all things to all people," said Richard Adams, a former McDonald's franchisee and consultant. "They don't have that confidence anymore, so they're trying to sell everything everybody wants."

Analysts are expecting flat sales in a best-case scenario, and Mr. Penney estimated fourth-quarter sales could be down as much as 5% -- what he called "the worst quarter since 2004."

Unfortunately for Mr. Stratton, the timing couldn't be worse for a sales slump. Last winter's unusually mild weather produced strong sales, raising the bar for same-store sales comparisons this year for all fast-feeders. Vaulting that bar may put pressure on marketing.

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