McDonald’s Corp. will introduce an offer Monday for a Double Cheeseburger and small fries, priced at $2.50. The company believes the compelling value offer could help lift it out of a two-year sales slump.
Yet the promotion has been months in the making. It began as a regional offer, and then passed a series of committees and votes by the company’s 3,100 domestic franchisees, who have considerable say in McDonald’s marketing promotions.
The process illustrates McDonald’s unique relationship with its franchisees, which goes back decades and has helped shape the company’s success.
“We’re all better and smarter together,” said Julie Wenger, senior director of U.S. marketing for Oak Brook, Ill.-based McDonald’s. “Our owner-operators are independent business owners who live and work and operate businesses in their communities every day. They’re seeing things firsthand. They’re talking to customers every day. They know customers. The collaborative process makes us stronger, without a doubt.”
McDonald’s franchisees contribute 1.6 percent of their sales to the company’s national advertising fund, called the McDonald’s Operators National Advertising Fund, or OPNAD. Franchisees are not required to participate, but those who abstain do not receive access to the company’s marketing programs. Also, McDonald’s performance standards require a certain level of franchisee involvement, according to the company’s most recent franchise disclosure document.
The Double Cheeseburger and fries campaign began, like many company promotions, as an idea from one of the regional marketing cooperatives in the system. The promotion was successful, and the company decided to try it out nationwide.
McDonald’s has been looking for a compelling value offer, as intense competition from other quick-service chains, as well as convenience stores and fast-casual restaurants, is stealing some of its market share.
In an investor presentation last month, McDonald’s CEO Steve Easterbrook suggested that the lack of a compelling value promotion has hurt sales.
“Some of the challenges we’ve had in the U.S. have been somewhat self-inflicted,” Easterbrook said. “We moved away from the Dollar Menu and didn’t replace it with significant enough value in the eyes of consumers.”
The Double Cheeseburger promotion was refined in a series of conversations and advertising committees, Wenger said. And the program was presented to the committee of franchisees at OPNAD that approves McDonald’s marketing messages. The committee is elected by franchisees.
OPNAD approved the promotion in May. Since the campaign involved an advertised, national price point, it also required a vote of the system’s 3,100 franchisees.
There are different voting levels based on the campaigns, and some can move through the process more quickly than others, Wenger said. A vote of the entire system can take 30 to 45 days.
In general, franchisees usually agree with OPNAD’s recommendations.
“It rarely gets voted back that it’s not something that has merit,” she said. “When it does, it’s usually over local marketing conditions.”
The campaign was finalized last Friday. But after OPNAD gave its approval, the company began preparing its marketing machine to be ready in time for the kickoff Monday. McDonald’s is preparing a series of television, radio, digital and social media ads.
The company has high hopes for the campaign. The deal offers customers a popular sandwich, plus fries, at a compelling $2.50 price point that operators should be able to profit from, especially if customers add drinks. But it also satisfies customers who prefer not to order drinks at the restaurant.
“It’s a bit of a new approach for us,” Wenger said.
National marketing dollar conflicts
Franchise systems typically give franchisees control over local marketing initiatives. Larger systems will at least give franchisees some say as to how national marketing dollars are spent.
Larger systems often have to tread carefully around these marketing strategies, given that franchisees contribute a portion of their sales into the ad fund. Over the years, there have been some high-profile lawsuits and conflicts over how those dollars are spent and who controls the funds.
In 2010, for instance, Subway parent Doctor’s Associates won control of the company’s ad fund in a lawsuit settlement. In 2009, Burger King franchisees sued the company over a Dollar Double Cheeseburger promotion, as well as soft drink rebates.
Recently, KFC franchisees agreed to give control of domestic marketing to parent Yum! Brands Inc. in exchange for a $185 million investment in the brand, which includes funds for advertising, as well as help for franchisees to buy equipment and incentives to remodel locations.
These funds can become points of conflict when a chain is struggling. In recent months, McDonald’s franchisees have become increasingly frustrated with the system’s performance, according to a franchisee survey by Janney Capital Markets analyst Mark Kalinowski.
But OPNAD demonstrates McDonald’s ability to work with its franchisees, the company said.
“We have a real collaborative relationship with our franchisees,” Wenger said. “Part of our beauty is that we get lots of great ideas regionally, before they get to the national level. We looked across regions, and we looked at things working well. The Double Cheeseburger small fry combo is an example of one of these things.”
Getting franchisee consent can seem complicated. The month-long wait for approval can be a disadvantage in a world in which McDonald’s competes against smaller, more nimble competitors, or more aggressive concepts, or against those that don’t have franchisees at all.
But Wenger said OPNAD could approve something quickly if the need arose through a special meeting over webcast.
“They recognize the importance of being nimble and flexible,” she said. “It could be cumbersome if we didn’t have that relationship with operators where they’re willing to do that.”
McDonald’s has avoided responding directly to some competitors’ marketing campaigns. For instance, Miami-based Burger King has offered a successful 10-piece chicken nugget deal, priced at $1.49, that has driven sales since last fall.
Some McDonald’s markets have responded with their own chicken nugget promotions, particularly in Florida. Wenger said that in such cases, McDonald’s can let local and regional markets respond to competitive threats. But the company hasn’t responded to the campaign nationwide.
“As a system, we tend to stay focused on our marketing strategies, and we’re not overly reactive to competitive activity,” Wenger said. “We focus on our consumers and what our consumers want. We’d make ourselves and our owner-operators pretty crazy by responding to every tactic from our competitors.”