Campaign 55 Bombs Mcdonald’s Scales Back Controversial Promotion After Franchisees Balk

In the past, McDonald’s Corp. has vanquished all challengers in the battle to feed consumers on the go, but today it faces one of its greatest - and most unexpected - adversaries: its own owner-operators.

The world’s largest fast-food chain has found itself in the embarrassing position of twice reversing course on its “Campaign 55” promotion after consumers shunned the campaign and franchisees balked at its costs.

Investment houses responded Wednesday by downgrading the company’s stock. The fiasco illustrates how even the biggest businesses must cater to fretting franchisees to succeed.

“In the beginning, the franchiser - and McDonald’s was one of the first - had total power,” said Sheldon Rosenfeld, president of Creative Capital Corp., which arranges financing and advises franchises. “But recently, for the past four years or so, the franchisees have begun to band together to create power for themselves and protect their interests.”

McDonald’s goal for the past few years has been to increase market share and fend off competitors such as Burger King and Wendy’s. Customers have flocked to the rivals because of tastier menus and glitzy marketing.

While McDonald’s overall sales remain the envy of many corporations, the fast-food giant is not used to losing. It responded by rapidly opening more stores. The strategy apparently was that even if store volume did not increase, sales would because of sheer numbers. And the corporation also could collect more rent and franchise fees.

But some of the company’s owner-operators, who represent 85 percent of the company’s North American sales, cried foul. The money they took home began plummeting because new outlets were opening so close to older stores.

While the fast-food chain slowed expansion in response, it still plans to open about 600 stores this year.

It also is working elsewhere to boost sales at stores open at least a year - an industry measure of performance. It spent hundreds of millions of dollars last year to introduce new, tastier sandwiches. But some consumers, analysts and share holders say the food tastes no better.

Then came Campaign 55.

The program that was to roll back prices on its larger sandwiches through at least December didn’t even last 55 days.

Many customers didn’t realize they had to buy fries and a drink to get the deal, and franchisees complained they lost money if customers bought just a small drink and small fries.

A week earlier, McDonald’s confirmed it had backed out of a plan to offer consumers free food if their meal was not served within 55 seconds. Franchisees again balked.

A McDonald’s spokesman did not return a call seeking comment. But the company has said the vast majority of its shareholders are happy with management’s decisions.

One vocal group, which purports to represent hundreds of McDonald’s franchisees, contends the leadership at the Oak Brook, Ill.-based company has done a miserable job recently.

“The McDonald’s franchisees tried to tell Oak Brook from the beginning that this was not an effective promotion,” said Dick Adams, president of the group, many of whom are suing the company. “McDonald’s forced it on them as the only alternative …”

McDonald’s now must sit down with the dissidents and try to work out their differences, said Terry Hill, a spokesman for the International Franchise Association, which represents franchises, suppliers and owner-operators.

“This dispute is not about the life and death of the company - it’s about market share and profits,” Hill said. “This could feed on itself, hurting a company that has a pretty good track record at finding success.”