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What lies behind MEC’s decision not to defend KFC?

KFC in the US is reviewing its media account, joining just about every other advertiser of note.

With a spend of about $220m KFC is not one of the real biggies but its owner, Fortune 500 company Yum Brands, also owns Pizza Hut and Taco Bell so it’s a significant player. Yum Brands spends about $2bn on media worldwide.

What’s interesting is that WPP-owned MEC has, in KFC’s words, “elected not to defend the business.” We might ask why.

MEC has just lost the massive AT&T account in the US, variously estimated at between $2bn and $4bn, to Omnicom’s new media network Hearts & Science. So you might have imagined it would be extra keen to hang on to KFC. But maybe the agency’s knackered after such a big and protracted pitch, which apparently buggered up everyone’s summer holidays. MEC was said to be confident about retaining the account up to the very last moment.

AT&T media is reported to be worth about $100m in fees, most of which, presumably, went to MEC. So the agency will be doing some heavy restructuring involving, one imagines, heavy redundancies. Is it still a viable operator in the US?

In a statement KFC said it was looking for a media agency “capable of deploying innovative media strategies while leveraging cost efficiencies and maximizing return on investment.” Doing more for less in other words and this is the most likely explanation for MEC’s decision (MEC has so far not commented).

WPP as a whole declined to take part in the recent pitch for McDonald’s creative in the US (that went to Omnicom too, which is setting up a new entity headed by DDB). The McDonald’s pitch was controversial because the participating agency groups were asked to work for no profit on the promise that there would, eventually, be payment by results (PBR).

WPP chief Sir Martin Sorrell has been vocal in his complaints that clients are setting unreasonable terms and his rivals are screwing up the agency business by trying to meet them. The decision not to defend KFC and not to pitch for McDonald’s could be part of a WPP policy that “enough is enough.”

For all we know there may yet be other WPP media agencies on KFC’s eventual list (WPP also owns Maxus, MediaCom and Mindshare with big negotiations handled by GroupM).

But clients, aided by serried ranks of consultants, are trying to turn the screw on media agency and, by extension, holding company margins. The recent Association of National Advertisers furore in the US, ostensibly about media owner rebates, is actually about screwing down creative and media costs.

Agencies have historically been terrible about holding the line on price. Someone will always break ranks and do it for less, hoping that Santa will, one day, come down their chimney. Sorrell, though, is made of sterner stuff.

WPP is probably big enough to hold the line. But it could be painful all the same.

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About Stephen Foster

Stephen is a former editor of Marketing Week and London Evening Standard advertising columnist. He wrote City Republic for Brand Republic and is a partner in communications consultancy The Editorial Partnership.
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