McDonald’s is the first to admit things are not going as well as the company would like.
In its annual report released in March, CEO Steve Easterbrook owned up to the $18 billion fast food retailer’s disappointing performance – sales up only 1 percent with an operating income decline of 8 percent. To right the corporation, the company vowed to reorganize itself to “put consumers at the forefront of everything we do.”
There has been a generational shift away from red meat. Issues like sourcing locally and the humane treatment of animals increasingly matters to consumers as well. This is the headwind McDonald’s is facing. The company recognizes this. Easterbrook says the company will build on their traditional values of “Quality, Service, Cleanliness and Value” by also actively addressing food “perceptions” and sustainability.
Francesca DeBiase, McDonald’s chief supply chain and sustainability officer, offered some insights into how the company is approaching these strategic goals recently on a panel at the Council for Supply Chain Management Professionals called “The New Age of Sourcing and Procurement.”
DeBiase said that in procurement “cost savings matter, but that is basic.” The organization is seeking “a customer centric competitive advantage.” The procurement department needs to look closely at where food is coming from, they need to work closely with marketing to develop selections that customers care about. But marketing needs to understand that there are big time lags involved in making changes.
The menu team comes up with interesting ideas like including kale in salads. The procurement team and suppliers then try to get the menu team to understand the challenges. How do you bring kale to 14,000 restaurants? As one example, when they introduced Blueberry Smoothies in the U.S., McDonald’s ended up consuming one third of the blueberry market overnight.
DeBiase gave an example of the importance of cross functional planning and consumer research from early in her career. At that point in time she was based in Europe. When the company introduced Chicken McNuggets it was a successful introduction, but they had not done enough research on which sauces the Polish market would prefer. It turns out Poles really, really liked the sweet and sour sauce, which they did not have nearly enough of. They ended up chartering a 747 and flying the sauce in from Germany. “Those were very expensive McNuggets. This was an early lesson on how important assured supply is.”
While sustainability has become a major focus for McDonald’s in recent years, the journey started in 2006 when Greenpeace put out a press release titled Greenpeace investigation links fast food giants to Amazon destruction: Campaign launched to hold McDonald’s accountable. “Using satellite images, aerial surveillance, previously unreleased government documents and on-the-ground monitoring, Greenpeace traced soya from criminal rainforest destruction to McDonald restaurants and to supermarkets across Europe… In response, this morning dozens of seven-foot-tall chickens invaded McDonald’s restaurants across the UK and chained themselves to chairs. Greenpeace forests campaign coordinator, Gavin Edwards, said: ‘Fast food giants like McDonald’s are trashing the Amazon for cheap meat.’” This was a virtually irresistible news peg and this was widely reported throughout Europe.
This was also news to McDonald’s. They met with Greenpeace and had to admit they hadn’t tracked their supply chain back to the source of the feed ingredients. They were also forced to ask themselves, “what else is out there we don’t know about?” Consequently, they began working with the Worldwide Wildlife Fund (WWF) in the area of sustainable procurement.
When they asked the WWF what they should be focusing on, the answer was “Beef!” However, at that time there was not even a common definition of what “sustainable beef” would encompass.
Consequently, McDonald’s became a founding member of the Global Roundtable for Sustainable Beef. When the organization started, they proposed various definitions and allowed the public to comment on those definitions. It took two years to get to approved principles with supporting criteria for what sustainable beef would encompass.
Some of the core principals included responsibly managing the global beef value chain in a way that enhances the ecosystem, ensuring safe beef, and a focus on animal welfare. Animal welfare is something my sons care about. One of the Roundtable’s eight supporting criterion surrounding this is “that cattle are kept in an environment (including stocking density, air quality and surfaces), which is conducive to good health and normal behavior and minimizes physical discomfort.”
McDonald’s will make their first purchases of sustainable beef in 2016 to support the Canadian market. They will use Canada as a test market, prove the feasibility, and then roll this out globally. To support this initiative they are looking at test farms, asking big suppliers like Cargill to participate in this program, and collaborating with retailers like Wal-Mart to move the initiative along. Francesca calls this a “meaningful investment. But customer’s care!”
By 2020 they will make a public commitment on what percentage of sustainable beef will be targeted. Some day they hope to be able to report that all of the beef they procure is sustainable beef. But it takes time to move a big ship; McDonald’s purchases one and a half percent of the world’s beef. They are a global company and they will need global suppliers to support this, particularly as consumers in many parts of the world like locally sourced food.
Audits will undoubtedly be required. “We are good at asking the right questions of our suppliers. But when you start doing unannounced audits, you sometimes get different answers.” McDonald’s has embedded sustainability teams in the procurement department to help with these kinds of issues.
Having a respected sustainability program and making significant supply chain investments won’t pay off unless the company can get the message out that they care. Annually publishing a sustainability report is clearly not enough to accomplish that goal.
McDonald’s benchmarked their social media operations against Coca-Cola who they consider the best in the world at social marketing. According to Ms. DeBiase, Coca-Cola has a social media hub in the center of their office, staffed by hip young professionals, that looks like an air traffic control tower. They piloted a social media site in Canada labeled “Our Food, Your Questions.” When they started getting questions about whether their patties were 100 percent beef, they were able to answer that yes, they were. To prove the point, they directed consumers to take a video tour of a plant. Their “food I feel good about eating” score went up 20 points. The company has just begun a similar effort in the US.
In conclusion, sustainable procurement is critical to McDonald’s future. But turning a big ship can not be done quickly or easily. And once they turn the ship, they need to get that message out.