19 September 2008 - McDonald's Corporation, the world's largest restaurant chain, has been reporting consecutive, year-over-year months of global comparative sales increases for more than five years.
The fast food operator, which served 56 million customers per day in 2007, is continuing to grow rapidly and international business is providing a cushion for economic downturn in the US. However, at the same time, McDonald’s is feeling the pressures of increased commodity costs, such as feed grains and fuel.
As a result, its costs are rising 5 to 6% this year, and the company expects to see the same range of increases in 2009 as well.
At the World Meat Congress in Cape Town, South Africa, last week, Gary Johnson, who is Senior Director of the Worldwide Supply Chain for McDonald’s, said that, despite the above factors, his company continues to sell numerous meals via its outlets.
Johnson, who is in charge of developing strategic directions for sourcing beef, pork, poultry, and fish, which are supplied to more than 32,000 restaurants in 119 countries, added that McDonald’s annual global demand for meat rises up to 1.75 million tons.
Besides meat, Johnson said that McDonald's also has a requirement for 1.4 million tons of potatos, 4 billion ketchup packets, 30,000 tons of fish, 29,000 tons of lettuce, 510 million tomato slices. The company is also the world's leading purchase of apples.
Meat
Johnson, citing USDA data, said that beef per-capita consumption continues to be high in the U.S., Australia, Brazil, and Canada, but overall, beef is showing a downward trend. Only Brazil and China show an increase over the past five years with 1.4% and 3.4% compound annual growth rates respectively.
Meanwhile, pork consumption is holding steady, with high per capita usage in Europe, China, and the U.S.
Finally, chicken consumption continues to increase, with extremely high usage in the U.S. and relatively high consumption in Brazil, Australia, and Canada. Johnson highlighted continuing strong percentage gains in most countries over the past five years. As a result, Johnson said, “the number and variety of chicken products on McDonald’s menu continues to increase to meet these consumer preferences”.
The senior executive also argued that McDonald’s carries out studies across the world on consumer perceptions of beef. These come to the conclusion that the drivers of perceived beef quality vary considerably by country and show that taste and appearance is primary to all consumers.
He noted that “organic is important in the UK, and varies as a priority in other countries. Grain-fed beef is valued in Australia and Japan, while grass-fed beef is important in the U.S. The breed of animal is important to consumers in the U.S. UK, and Australia, but not so elsewhere. And natural, or hormone and antibiotic free, is valued in the UK, Germany, France, and Australia, and trending that way in the U.S. as well”.
Looking at future patterns of meat consumption, Johnson said that one can expect the demand for meat as a protein source to grow significantly as the world’s population continues to climb. In addition, large developing nations like China and India are developing an increasingly prosperous middle class, which will also drive the demand for meat upwards.
Quoting data from a 2006 research paper (extrapolating current trends) by Nathan Fiala at the Department of Economics at the University of California at Irvine, the McDonald’s senior executive highlighted that global beef consumption from 2003 will increase by 28% by 2020 and 60% by 2040. Pork consumption will also increase 45% by 2020 and 98% by 2040. Finally, the largest growth will be recorded for chicken meat, which will increase by 68% by 2020 and 148% by 2040.
Sustainability as a Means to Improve Fast Food Industry’s Reputation
Sustainability is increasingly becoming a primary concern for consumers, argued Johnson.
“In terms of perceptions of the food industry’s performance on social responsibility compared with other industries, based on a survey in 25 major countries, we still rank high, coming in just behind the technology and media sectors in the eyes of the public. However, the bad news is that the industry’s reputation has been trending downward over the past few years in a number of key markets, like Canada, USA, France, Australia, and China”, he commented.
Johnson referred to a 2006 study by Edelman Public Relations that concluded that more than 70% of consumers across Europe, Asia, and North America had “refused to buy products and services” from companies they did not trust.
“To reverse this trend, and assure trust in our industry in the future, consumers are increasingly telling us that sustainability issues are very important to them”.
The Global Supply Chain Director then shared his company’s vision of sustainability in the supply chain which is based on profitably yielding high-quality, safe products without supply interruption while leveraging its leadership position to create a net benefit for improving ethical, environmental, and economic outcomes.
He said that the fast food chain’s aim is to influence the sourcing of its materials and ensure the design of its products, their manufacture, distribution, and use so that they minimise life cycle impacts on the environment.
Meanwhile, the company’s goal is to deliver affordable food to its customers, engage in equitable trade practices, limit the spread of agricultural diseases, and have a positive impact on the communities where its suppliers operate.
“We work to continuously improve and advance our existing efforts related to crop and livestock diseases and providing affordable food”, he said.
Johnson then added: “Our industry is in this together. We are only as strong as the weakest link in our supply chain, whether it’s production, processing, distribution, or retail sales. If consumer trust is broken at any point in the chain, we all suffer the consequences”.
Johnson views the trust factor as a key to future development, not only for McDonald’s but for the food industry in general. He believes that his company has to find sustainable ways of continuing to meet the demands of a world that is growing in population and prosperity. People have changed dramatically over the past ten years and they have adopted different attitudes when it comes to food consumption. The aftermath of the BSE crisis showed that.
Johnson added: “As Thomas Friedman tells us in his book, The World is Flat – there are no more borders … communication is instantaneous … and news literally explodes upon the scene everywhere at once.
That has serious implications for all of us, because in the uncertainty of today’s world … trust is a must, it is our passport to do business in every market where we operate. Sustainability is not an easy fix … it is a long-term challenge”.
The Global Supply Chain Director then concluded that, in order to obtain recognition by the public for its commitment to sustainability, McDonald’s will continue to build the consumers’ trust by creating supply chains built on sustainability and security.