Two sustainably sourced all-beef patties, special sauce, a bit of lettuce, cheese, pickles, no onions on a sesame seed bun (the bun is $3 extra)

Consumer tastes are shifting and so is our climate. Can McDonald's find a way to stay relevant?

Over the second half of the 20th century, McDonald’s climbed to the top of the restaurant industry food chain by providing consumers with an accessible, low-cost dining option. Even in the face of growing nutrition concerns and alternative fast casual dining options, McDonald’s has managed to maintain an edge because of its low prices. That said, global climate change could change all of that. Representing one third of its total expenses, McDonald’s food and beverage ingredients are incredibly susceptible to the impacts of rising temperatures. [1]

All across the globe, the agriculture industry is bracing for a future of lower overall crop yields and increased input costs due to warmer temperatures, a shrinking water supply, longer insect breeding seasons, and increased climate related regulation. [2] The downstream cost implications won’t only impact McDonald’s tomatoes, lettuce, and potatoes. Sugarcane, grain, and coffee farmers will experience similar problems and McDonald’s ketchup, soda, bread, and coffee supplies will suffer cost increases as a result.

In addition to produce, the increasing frequency and severity of droughts and high temperatures are placing a huge strain on the cattle industry. Scientists predict that the overall health and reproductive rates of cattle will decline with climate change. [2]

Change in Consecutive Dry Days (1971-2000 compared to 2070-2099 forecasts)

Change in Consecutive Dry Days

 

How much of these increased costs can McDonald’s pass on to its customers and still maintain a low-cost competitive edge? Is there anything the fast-food chain do to avoid this future world?

Thankfully, as the largest restaurant chain in the world, McDonald’s is one of the few companies that has real power to influence how it’s food suppliers do business. One year ago, McDonald’s joined dozens of other companies in signing on to President Obama’s American Business Act on Climate Pledge. [3] According to the pledge, McDonald’s has committed to shrinking its carbon footprint by shifting food procurement to more sustainable sources, increasing energy efficiency, promoting the growth of competitive renewable energy sources, and reducing waste. More specifically with respect to its food supply chain, McDonald’s has pledged to:

  • Start sustainably sourcing beef in 2016 – McDonald’s established the Global Roundtable for Sustainable Beef, where it ran a pilot program in Canada testing potential sustainable livestock farming solutions. McDonald’s also plays an active role Sustainable Agriculture Initiative Working Group, which has implemented a set of standards in Europe that cattle farmers can follow to obtain more sustainable practices. In short, sustainable livestock farming reduces the amount of grains, soil, and fossil fuel required to raise cattle by allowing allowing cows to graze in larger areas. Many people also maintain that sustainable cattle farming experience lower costs due to healthier livestock. [4]
  • 100% of sustainably sourced palm oil by 2020 – By sourcing sustainable palm oil, McDonald’s hopes to significantly reduce its role in deforestation.
  • 100% sustainably sourced coffee by 2020 – McDonald’s has partnered with international non-profits to teach coffee farmers how to sustainably grow coffee. Similar to sustainable livestock farming, sustainable coffee growth possesses the potential to offer higher coffee yields with a lower carbon footprint.

Is it enough?

While it’s a good start, the jury is still out on whether McDonald’s will actually follow through on these promises. Additionally, McDonald’s neglected to commit any resources to drive agriculture reform outside of coffee. I understand McDonald’s hesitance, but I don’t think that it has much of a choice. While sustainable farming practices may increase costs in the short term, failure to change current farming practices will only lead to even higher costs as global climate change worsens.

If McDonald’s really wants to shrink its carbon footprint and reduce cost risk, it may also need to consider alternatives to serving beef on its menu. Methane emissions from beef cows alone represent about 20% of agricultural greenhouse gas emissions.[5] I also don’t think that the supply of cattle stands a chance against increased temperatures and more severe droughts, whether they are sustainably raised or not.

Driving agriculture reform and sourcing more environmentally friendly foods doesn’t just represent future cost avoidance, it’s can also be a great marketing tool. According to the National Restaurant Association’s annual culinary forecast, “62% of consumers are likely to make a restaurant choice based on its eco-friendly practices” and “60% are more likely to pick a restaurant that serves food grown or raised in an environmentally friendly way.” [6] I recognize that these decisions aren’t easy. They represent a fundamental shift in McDonald’s brand image. That said, McDonald’s can use this as an opportunity to not only better prepare for the future impacts of global warming, but to also stay relevant in the face of evolving consumer tastes.

 

Word Count: 760

 

[1] Adam Jones, “Must Know: An Overview of McDonald’s” (http://marketrealist.com/2014/07/must-know-mcdonalds-major-operation-costs/).

[2] USGCRP (2014). Hatfield, J., et al, 2014: Ch. 6: Agri­culture. Climate Change Impacts in the United States: The Third National Climate Assessment, U.S. Global Change Research Program, 150-174.

[3] McDonald’s Corporation, “White House American Business Act on Climate Pledge” (http://corporate.mcdonalds.com/content/dam/AboutMcDonalds/2.0/pdfs/McDonalds_White%20House_Climate%20Pledge_Oct%2019%202015.pdf).

[4] Grace Communications, “Sustainable Livestock Husbandry” (http://www.sustainabletable.org/248/sustainable-livestock-husbandry).

[5] F.N. Tubiello, et al., “Agriculture, Forestry and Other Land Use Emissions by Sources and Removals by Sinks:1990-2011 Analysis,” FAO Statistics Division: Working Paper Series, March 2014. (http://www.fao.org/docrep/019/i3671e/i3671e.pdf).

[6] Business Forward Foundation, “Severe Weather and Restaurants: Comparing the Cost and Severe Weather and New Power Plant Emissions Standards on the Restaurant Industry,” Nov. 2015. (http://www.businessfwd.org/resources/pdf/Restaurant-Report-Final.pdf).

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12 thoughts on “Two sustainably sourced all-beef patties, special sauce, a bit of lettuce, cheese, pickles, no onions on a sesame seed bun (the bun is $3 extra)

  1. Great post! I wonder if McDonald’s can also capitalize on synergies between evolving consumer tastes and sustainability priorities. Since both call for using less beef and dairy, McDonald’s should be able to reduce its exposure to climate risk by serving more produce & poultry. As you note, McDonald’s has the scale to influence its suppliers – I think the same could be said of its customers. I’d love to see McDonald’s “nudge” diners into eating more sustainable foods by changing the makeup of its menu.

  2. Cool post, Casey. I definitely don’t think of Fast Food when I think “sustainability.” To Sophie’s point, I too would really like to see McDonald’s keying in on overlaps between changing consumer tastes and more highly sustainable food products. McDonald’s is constantly testing out menu tweaks (with widely varying success…). It does look like their current campaign features some different flavors, and features burgers made of either ground beef or chicken breast, though overall not necessarily more sustainable options. One way McDonald’s could go is to introduce more alternative proteins, for example as veggie burgers, which are on some global menus already.

    One key thing McDonald’s needs to consider with any menu tweaking it does is production – a key to keeping low costs for McDonald’s is operating efficiency – controlled menus with common ingredients and standardized preparation.

  3. Very interesting topic! The effect of climate change on McDonald’s operating model, as such a dominant player in the fast food market, will be very visible to the entire industry. I was especially intrigued by your suggestion to move towards serving other items on the menu other than beef. Most of the McDonald’s in Asia actually do just that—for example, in India the menu is focused on chicken and vegetarian options for cultural/religious reasons. I wonder what a geographical analysis of expenses and GHG emissions looks like! McDonald’s could maybe also tackle other inefficiencies in its supply chain to reduce its impact on climate change, including tackling its transportation costs. From a quick Google search, a few articles (http://www.usanfranonline.com/resources/supply-chain-management/what-are-the-ingredients-in-a-mcdonalds-supply-chain/#.WB_8qPorLb0) reference two to three truck deliveries per week—perhaps by consolidating these deliveries or optimizing routes, McDonald’s could also cut down on fuel use and subsequent GHG emissions from this category. Combined with the strategies you listed above, this could really impact their GHG emissions through all parts of their supply chain.

  4. Going off on Ariana’s comment above – McDonalds globally does a great job in catering to the tastes of the regions they serve. Because beef patties are so prominent in the United States, there would have to be a strong shift in consumer sentiment/preference for the demand of beef to go down… But I think providing consumers with options (Turkey burger?!) in addition to launching an widely advertised initiative could help shift consumers to purchase the alternative products over a regular burger. In addition, I’m curious if there are steps being taken for McDonalds to minimize packaging, both for the meals and the materials that’s shipped to the local stores. I remember throwing out my empty fries container in Tokyo and thinking how much space in the trash can all the packaging took, very inefficiently, because it wasn’t compressed.

  5. I agree with what others have said about the McDonald’s menu changing for different regions. They obviously have to offer the types of foods that customers want to buy, but offering more variety and marketing chicken and turkey options more aggressively might be good for PR and the company’s future in a changing climate. It seems like they are doing a few things right now to look good to the public, but it doesn’t seem to me that they are taking the issue seriously enough at this point. I will be very interested to see where they go from here.

  6. It’s great to see that an organization with such influence and brand-recognition is trying to operate more sustainably. Hopefully, McDonald’s efforts will serve as an example for other major industry players. I agree, though, that it does seem that there is still more that the organization can do. As others have mentioned above, there is definitely opportunity for McDonald’s to experiment with menu options that are more sustainable, including poultry, fish, and vegetarian options. It is well known that McDonald’s has had trouble in the past attracting millennial consumers. Perhaps by offering better quality food (organic, eco-friendly), McDonald’s could improve the environment while also creating a more attractive offering for highly coveted millennials. Studies have shown that millennials are put off by the perceived lack of quality of McDonald’s ingredients (https://www.ypulse.com/post/view/millennials-teens-sound-off-what-would-make-them-eat-at-mcdonalds1). It’s likely that McDonald’s is already considering something similar but the firm risks becoming increasingly less irrelevant if they don’t evolve with more pace.

  7. Cool post, thanks. Its interesting to think of how one of the cheapest fast food provider will adapt to be more sustainable. If McDonald’s raise their costs too much, they may lose their whole value proposition to consumers. It will be cool to see what McDonald’s can do while keeping their costs in control. I think their are a lot of affordable solutions available and it will be interesting to see which one’s McDonald’s chooses.

  8. Thanks for sharing this Casey. I think this is a great look at what McDonald’s has done and needs to do to respond to climate change. I think you make a number of great points – notably the fact that sustainably sourcing coffee is not enough for McD’s. I wonder if one way they can help more sustainably source other crops is by providing their farmers with tools that can help them manage their farms more sustainably. For instance, many wine growers are now using infrared technology to examine plant roots and determine which plants need the most water. Do you think this type of technology could be applied in the agricultural fields that McD’s works with?

    Again, thanks so much for sharing Casey- great article!

  9. Casey + prior commenters, great ideas! I may be a bit of a contratian here and would love people’s thoughts. I liked Casey’s point that, “While sustainable farming practices may increase costs in the short term, failure to change current farming practices will only lead to even higher costs as global climate change worsens.”

    My thought is that if McDonalds takes the selfish short-term view, it seems that although they may pay more in the future, everyone elsewill as well. In the future everyone’s prices will increase, and they will still be the lowest price option (just more expensive than now). A similar metaphor is that the tide rises for all boats.

    If they can market the sustainability practices to increase sales or qualify for tax benefits, then the sustainability view will help their performance. Or, if they can reduce cattle costs (as you mentioned), than it may be clear to justify larger initial investments. However, in such a low margin industry, it’d be hard to be in the Board Room advocating for significant investments with a long-term horizon when competitors may not be doing the same.

    In sum, as a millennial that (hopefully) lives for another 70 years, I’m all about sustainability investments. But taking the long view when Wall Street values short term gains will be hard to implement.

  10. Thanks for the great post, Casey! Agree with many of the comments above that focusing on changing consumer demand via changing menu options could be a path forward. I imagine McDonald’s, which will need to adapt to changing consumer tastes anyway, would look at whether it truly needs several versions of burgers vs offering more incremental, albeit slower-turning non-beef options.

    The McDonald’s brand, in general, has been under siege over the last decade for ingredient sourcing, food quality, health concerns, etc. I see sustainability as a possible path forward to once again resonate with a new generation (Millennials or Gen Z). While they’re just beginning to commit to improving sustainable sourcing, I agree with you that this effort needs to be accelerated and I see this as an opportunity, if done right, to re-build relationships with significant percentages of generations who’ve likely moved on from considering McDonald’s as a relevant brand or dining option.

  11. I think this post is interesting given McDonald’s low-cost position in the fast food industry – they do not have a lot of room to pass on any increase in costs from shifting to more sustainable practices to their consumers. And I’m not sure that McDonald’s cost-sensitive or time-rushed consumers would actually see sustainability as a differentiator when buying from McDonald’s given that the company’s strongest value propositions are its low cost and quick service – sustainability doesn’t really add value in either dimension. So I would definitely have been interested to learn more about how much it would cost McDonald’s to shift to more sustainable practices and how they would plan on absorbing or passing along those costs to their consumers.

  12. Nice post, thanks Casey.

    As you mentioned in the post and several people have said in the comments above- the problems with Beef are not just limited to the energy and grain consumption required by traditional factory farming. Beef farming is also a huge methane emitter (A greenhouse gas 27x more potent that CO2) and a massive water consumer. “Sustainable” beef farming, will address the energy, grain, and water inputs but cannot address the methane impact.

    I went to an interesting speaker on campus a couple of weeks ago from the Good Food Institute (http://www.gfi.org/)- a trade group promoting “vegetable based meats” and “cellular meats” which are made from processed soy or lab grown meat from stem cells respectively. The Good Food Institute posits that it is impossible to mitigate the impacts of meat production and therefore,m order to feed 9Bn global population and protect against climate change, we must switch to one of these alternatives. The alternatives seem pretty odd to the average consumer of today… but if anyone could make them mainstream quick, maybe it could be a company with the scale and buyer power of McDonalds.

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