Kudos to McDonald’s Corporation (NYSE:MCD) for deciding to use chicken that’s less laden with human antibiotics.
On the other hand, any owners of MCD stock expecting this small step to be a step in the right direction were abruptly reminded this morning that the fast-food chain still has a mountain of problems ahead of it.
What happened? Last month, McDonald’s Corporation reported a 1.7% drop in year-over-year company-wide sales. Sure, one rough month doesn’t make a trend. But it hasn’t been just one rough month for McDonald’s.
February marks the ninth straight month the world’s largest restaurant chain has seen declining revenue, with no end in sight. Something has to be fixed, and healthier chicken (and even the more recently-announced kale initiative) only scratches the surface.
The Good News for McDonald’s Customers
It was largely buried by the avalanche of news coverage of the fact that McDonald’s posted disappointing results — again — for last month, but going forward, the company is opting for antibiotic-free chicken to make its Chicken McNuggets.
It’s a decision that only applies in the United States (for the time being anyway), and will take up to two years to fully implement domestically. All the same, as the risks of heavily-medicated beef, chicken, and pork become more pervasive, there’s no particular downside to the move.
Perhaps more impressive is the ripple effect the news may have, not just on other restaurants, but for poultry farmers as well.
It’s largely unrecognized, but McDonald’s is also the nation’s biggest buyer of chickens within the restaurant world. Throw in the fact that Costco Wholesale Corporation (NASDAQ:COST) also announced last week it was aiming to stop carrying chicken with unnecessarily-added antibiotics, and one can’t help but wonder if the duo of companies can begin a nationwide chain-reaction of sorts, forcing other restaurants as well as other grocers to make a point of helping consumers take better care of themselves.
Yes, organic chicken is more expensive, though the added expense isn’t solely due to a more expensive process for raising chickens. The expense may have as much to do with scale, or lack thereof, for organic (or at least antibiotic-free) meet. With the market getting bigger, it could conceivably become cheaper to operate such farms, and therefore cheaper to buy these safer foods.
And to the extent a larger-scale organic/natural market raises input costs, most companies have faced little trouble passing those costs on to consumers.
The Bad News for MCD Shareholders
While antibiotic-free chicken is a wonderful first step for the company struggling to piece together a relevant, marketable menu, it’s also almost a comically small step for hopeful owners MCD stock, for a couple of reasons.
First (though not foremost), even an antibiotic-free Chicken McNugget is still a piece of meat breaded and battered with — among other things — bleached and enriched flour, niacin, thiamin mononitrate, and riboflavin, and then fried in a vegetable oil consisting of hydrogenated soybean oil and TBHQ, with a little dimethylpolysiloxane added for anti-foaming purposes.
In defense of McDonald’s, it’s not like a consumer wouldn’t be exposed to most of those ingredients at some point by cooking most grocery-bought foods at home. Nevertheless, to average consumers concerned about healthy eating, an antibiotic-free piece of chicken is far from their only concern.
Neither ingredients nor the pricing are at the root of the true problem McDonald’s is facing: Many consumers are still eating preservative-laden and antibiotic-rich meals that conventional that we shouldn’t want, and we’re paying a fairly pretty penny for them as well.
As this Wall Street Journal video explains, Arby’s saw a 5.7% increase in sales last year on nothing more than roast beef sandwiches … far from “healthy food.” And they’re not exactly cheap either, by fast food standards.
Point being, it can be done.
Just as confounding in a slightly different venue, as this Business Insider commentary accurately explains, is America’s growling love for frozen-meal brand Hungry-Man meals, from Pinnacle Foods Inc. (NYSE:PF). The ready-to-heat, oversized meals saw a decent 5% improvement in sales last year when many other pre-packaged dinners saw weakness.
There’s nothing compelling in the meals for the health-conscious. Each one packs something in the range of 900 calories, in addition to a stunning amount of the usual preservatives, additives, fats, and sodium found in frozen meals.
Not every consumer out there has altered their dietary habits for the sake of health. Maybe, just maybe, consumers are avoiding McDonald’s simply because there’s nothing enjoyable about the dining experience.
Bottom Line for MCD Stock
Again, antibiotic-free chicken and kale — however it’s to be used — is a good first step. It’s not going to turn things around for the company, though, and it’s certainly not the reason February marked the ninth straight of falling revenue.
Until the company really figures out what’s wrong, MCD shareholders can expect more of the same disappointment.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
