In May of 2023, two of the companies owned by Byron Allen, a black businessman and producer, sued McDonald’s for $100 Million in California for fraud and false promise. The suit claimed the company lied when it committed to spending more money with black-owned media companies.
On February 2, 2024, California Superior Court Judge Mel Red Recana dismissed the case. But that does not mean this is over.
In this week’s episode of Art of Supply, I dig into the legal cases Byron Allen has brought against McDonald’s based on a single press release and why the case was dismissed.
Looking Back: May 2021
Allen’s lawsuit stemmed from a press release put out by McDonald’s in May of 2021. The United States was still reeling from the death of George Floyd, and McDonald’s was facing a number of lawsuits brought by black franchise owners.
They alleged that the company was offering more financial support and better restaurant locations to white franchisees, setting some franchisees up for success and leaving others to fend for themselves.
Some of the suits were dismissed and others were settled out of court, but all of them left a bad taste in the mouth of black consumers.
Black Americans represent approximately 40% of McDonald’s U.S. sales, so the last thing McDonald’s would have wanted to do was lose them as customers. What better way to address bad PR with good PR?
Bad press?
McDonald’s announced a very specific and public plan to increase their diversity spend over the course of four years. They committed to increasing their national media spending with black-owned media companies, content creators, and influencers.
As part of their plan to increase overall diversity spending from 4 percent to 10 percent of national ad spend between 2021 and 2024, the release specifically stated that McDonald’s spending with black-owned media companies would increase from 2 percent to 5 percent.
Based upon this announcement, Allen’s companies, including The Weather Group and Entertainment Studios Networks, started putting together proposals. In a declaration to the court, Allen Media Group Chief Revenue Officer Darren Galatt stated that they submitted a proposal for $30 Million in ad spend to McDonald’s, which was rejected by the company. McDonald’s countered but was only willing to spend a fraction of the proposed amount.
Procurement professionals will be familiar with the anger suppliers sometimes exhibit when they are surprised to lose a bid. But this wasn’t that.
Instead of being presumptuous about getting a contract, Allen’s companies put together their proposals knowing their market. Byron Allen owns 90% of black-owned media in the United States. Given the specific estimates McDonald’s shared in the press release, they cannot hit their spending target without Allen.
Which made him question the original intent of the press release – and the lawsuits began.
The Clock is Ticking
The fraud case was dismissed because Superior Court Judge Mel Red Recana said it would be premature to rule on the suit. McDonald’s still has 11 months to live up to its commitment. The clock hasn’t run down yet.
McDonald’s said they would spend a certain amount of their marketing budget with diverse and black-owned businesses before the end of 2024. Technically, they have until midnight on December 31st 2024 to prevent that statement from being a lie.
Allen filed the suit in 2022, a full two years before the promise’s expiration date.
The court statement reads as follows, “Defendant still has about 11 months remaining in this year to perform on its promise and commit to spending the necessary amount with Black Owned Media. It is purely speculative to conclude Defendant will not perform on its promise even if Defendant has not yet committed the amount needed in spending.”
Fortunately, the court document also provides a look into how McDonald’s is doing with their efforts.
McDonald’s Vice President of U.S. Customer Engagement, Caleb Pearson, said that the company plans to spend 5 percent of its national advertising budget with black-owned media companies, production houses, and content creators in 2024.
This would allow them to meet the commitment made in the 2021 press release, but the word plans sounds like a bit of an asterisk.
The court ruling makes a similar statement. McDonald’s has 11 months remaining to “commit to spending…”
Is a commitment a contract? A verbal agreement? A payment? It is not clear. Allen’s legal team is sticking to their assertion that McDonald’s lied and has vowed to appeal.
They have estimated that McDonald’s needs to spend about $25 million with black-owned media companies by the end of 2024 to achieve its public commitment. And the clock is ticking…
Links:
- The Downside of Supplier Diversity at McDonald’s
- Kelly Barner on LinkedIn
- Art of Supply LinkedIn newsletter
- Art of Supply on AOP
- Subscribe to This Week in Procurement
