McDonald’s Paid N.Y. Owners to Back Ad Campaign

McDonald’s Corp. paid $1,500 to each of New York City’s franchise owners to win their backing for a proposed national promotion, an analyst said.

Support of the New York franchisees was critical to swinging the vote narrowly in favor of the campaign, which will offer triple cheeseburgers for 99 cents starting next month, said Damon Brundage, a NatWest Securities Ltd. analyst.

The Oak Brook, Ill.-based company apparently lost an earlier New York vote on the promotion, then decided to offer New York franchisees $1,500 a store for their yes vote, Brundage said. The company didn’t offer the money to franchisees elsewhere, he said.

“This is a desperation move by McDonald’s,” said Brundage, who has been a critic of McDonald’s and wasn’t invited to a company-sponsored analysts meeting this week at its headquarters. “I would be upset if I were a franchise owner in another part of the country.”

Gerardo Perez, a McDonald’s restaurant owner in Cameron Park, Calif., said he heard about the New York incentive last week and has received phone calls from other franchise owners upset about the payments.

“A lot of franchise owners are calling the company and trying to find out what the deal is,” Perez said. “I intend to apply for my $1,500 if New York got that.”

McDonald’s officials did not return phone calls.

Under McDonald’s rules, Brundage said, at least 75% of its U.S. franchise owners must approve the promotion, which faced resistance because restaurant owners usually absorb the cost of such discounts by accepting a smaller profit margin.

Bob Srygley, who owns four McDonald’s in southeast Arkansas, said the campaign was supported by 75.6% of franchisees after the second New York vote. Srygley is battling McDonald’s in court to prevent the company from taking one of his stores.

McDonald’s has been squabbling with some of its franchise owners, who complained earlier this year that the company’s rapid U.S. expansion was cannibalizing their own sales. Since then, company executives have said they would reduce the number of new U.S. restaurants this year.

The world’s largest fast-food franchiser hasn’t had a large national promotion since its Campaign 55 discount sandwich promotion fizzled earlier this year.

The company unveiled a new ad campaign last month, “Did Somebody Say McDonald’s?” focused on brand recognition.

At Monday’s meeting, McDonald’s executives admitted making mistakes recently but said they are fixing them and positioning the company for robust long-term growth, analysts said.

The executives offered few new ideas, however, to 150 analysts and portfolio managers gathered to hear what the company can do to revive sagging U.S. sales and ease increasing concern that it has lost its competitive edge.

Michael Quinlan, chairman and chief executive, told the analysts that he was “committed to lengthening our lead around the world through expansion and increased sales at existing restaurants,” the company said in a brief release.

McDonald’s has the resources to achieve “double-digit earnings per-share growth in the range of 10% to 15% in each of the next five years,” Quinlan said in the statement.

McDonald’s shares closed unchanged at $44.75 on the New York Stock Exchange.