Mac Attack: McDonald's Ups Ad Reach
President-COO Ralph Alvarez said "a drop in media rates" is allowing the restaurant chain to garner more gross rating points or added media weight this year for core offerings, such as Big Macs and its dollar menu.
"We have not cut our advertising dollars, so we can use those extra weights in a significant way to drive the business," Alvarez said at an investor event.
McDonald's spent some $823 billion in ad dollars in 2008, according to TNS Media Intelligence. Of that, $23 million was used during test marketing for the McCafé line in select markets. (Strip that out and spending was about on par with 2007.)
About 60% of McDonald's advertising is spent in local markets, where pricing has dropped acutely. Alvarez admits it is a plus, saying the company is "benefiting."
Beyond the additional heft behind McNuggets or Quarter Pounders, the recalibration in media pricing may separately be helping McDonald's with its new campaign for its McCafé premium coffees. The line of cappuccinos, lattes and mochas had been in test mode in about 2,000 restaurants over the past year, and is now being rolled out nationally.
McDonald's says McCafé marks its biggest launch in 30 years -- a signal that it will be an active player in the upfront market. Last month, speaking in reference to the rollout, Alvarez said: "There's nothing like national advertising" in top prime-time shows as a venue to build awareness.
"That only happens on national and always stronger than what you could replicate locally," he said on an earnings call.
The McCafé line could prove to be a competitor to Starbucks. But Alvarez said Thursday that it may be more likely to expand the premium-blend category. He said the principal aim is "more frequency from our existing customers" -- getting them to visit McDonald's multiple times a day, rather than poach share from a Starbucks.
Alvarez said Thursday that McDonald's is "very pleased" with the initial results since McCafé's May 5 national launch. "We're in this for the long haul."
While McDonald's executives say customer benefits such as convenience are driving its business, others have suggested recent growth is a result of consumers being more cost-conscious in a bumpy economy. In the first quarter in the U.S., sales were up 4.7% and operating income 6% to $725 million.