Scandal unlikely to hurt McDonald's
By Dave Carpenter
CHICAGO A super-size scandal involving its promotional games was the last thing McDonald's Corp. needed on top of a beef safety scare in Europe, a weakened economy and vegetarians' lawsuits over its french fries.
But Wall Street, restaurant industry experts and customers appear to have little beef with the fast-food giant about the conspiracy that denied patrons $13 million in cash and prizes since 1995.
Instead, the marketing company that was implicated in the alleged fixing of the games is taking the hit.
McDonald's fired Simon Marketing Inc. on Tuesday after federal authorities accused one of its employees of masterminding a multistate criminal ring that cashed in on the burger maker's popular "Monopoly" and "Who Wants to be a Millionaire?" promotions by hoarding winning game pieces. Eight people were arrested, including the security employee, Jerome Jacobson of Lawrenceville, Ga.
While McDonald's stock rose 25 cents to close at $30.25 a share yesterday afternoon on the New York Stock Exchange, shares in Los Angeles-based Simon Worldwide Inc., parent of Simon Marketing nose-dived 77 percent, or $2.35, to close at 30 cents on the Nasdaq Stock Market. McDonald's accounted for 65 percent of Simon's revenue.
The scandal's impact on McDonald's will be "a wave in the tide, a minor blip," although it might scare off a few customers who come to play the games, said restaurant industry expert Al Ries, who runs a marketing consultancy in Roswell, Ga.
Some analysts think McDonald's could even come out ahead by not only firing its longtime supplier, but by moving swiftly to make up the lost money to customers.
"I don't think they're going to lose even one hamburger sale from this," said industry consultant Jerry McVety, president of McVety and Associates in Farmington Hills, Mich.
The Oak Brook, Ill.-based company, which cooperated with the FBI in the investigation, plans a $10 million sweepstakes from Aug. 30-Sept. 3 that will make instant $1 million and $100,000 winners of customers at randomly selected restaurants.
Chief executive Jack Greenberg addressed the issue in an "open letter to McDonald's customers" published yesterday as a full-page advertisement in select newspapers nationwide, thanking them for their trust and touting the promotion as a "special second chance."
The usual lines of customers snaked through McDonald's restaurants at lunch time in downtown Chicago, where newspapers being sold at the counters screamed of the scandal in banner headlines.
"What could they do? Somebody scammed them," said Rick Percifield, 38, who applauded Greenberg's action in firing the marketer. "They seem to have handled it well. ... You'd have to be stupid to think McDonald's meant to do this."