McDonald's Makes an Ambitious Move Towards Antibiotic-Free Chicken

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Mar 09, 2015

McDonald’s (MCD, Financial) plans to shift from using antibiotic chicken to one that is raised naturally. The fast food giant’s new strategy is an aggressive move which is expected to act as a strong catalyst toward modifying the way poultry is produced and marketed. McDonald’s announced its plan of sourcing antibiotic-free chicken on Wednesday. The key reason behind this is customer demand.

Popular fast casual chains such as Chipotle Mexican Grill (CMG, Financial) and Panera Bread (PNRA, Financial) hold a good history of offering antibiotic free naturally raised items. This has helped them capture the market at a remarkable pace as Americans are increasingly looking for healthy organic food. McDonald’s officials said that the company hopes to achieve the target and convert to using antibiotic-free chicken in two years’ time. McDonald’s senior VP of supply chain Marion Gross acknowledges that there would be labeling and marketing related work, though. However, it is quite a big task for any company with such scale, but the Big Mac maker is rising to the occasion.

A big challenging move

This isn’t the first time McDonald’s has been working to lower antibiotics in meat. The company initiated this move in 2003 asking its suppliers to stop injecting antibiotics in chicken for growth. The latest move also asks the suppliers to do the same, but it’s a huge challenge for a company that operates over 14,000 chains in the U.S. and has a massive menu. Even a minor change in the supply chain or ingredients can cause tremendous difficulties. The company has struggled during menu changes because of its mammoth operations.

McDonald’s already faces supply chain issues. And presently only a small portion of the poultry supplied in the country is antibiotic free. The already strained supply chain will further get pressured to manage this transition.

Suppliers would need time to slowly make a shift to natural produce. Sensing the changing need of the customers and their growing inclination towards healthy diet has made several suppliers such as Tyson Foods (TSN, Financial)Â and Perdue to start cutting back on the antibiotics use level. However, these suppliers have said they are not able to modify their production systems as fast as the changing demand. Under these circumstances, McDonald’s attempt to convert to organic poultry shall tighten the supply chain and raise product prices too. Convincing farmers and meat packers to adopt fresh farming practices has been a huge challenge as they dread their profit margins to squeeze.

A past McDonald’s franchisee Richard Adams said, "This is very likely to cause a disruption in McDonald's food supply and will likely raise operating costs for McDonald's franchisees" in this regard. Chipotle has also sometimes faced trouble getting organic supplies. But does this imply that McDonald’ shouldn’t go ahead with this plan? McDonald’s should stick to it, even though there would be initial hiccups. Gross says, “Because of our scale, we have to plan well in advance and very thoughtfully…it is limiting if we don’t.”

A crucial strategy

McDonald’s will have to meet its suppliers and discuss the changes that need to be made in the production system so that livestock farmers can gradually move toward raising antibiotic-free poultry. It’s also essential for McDonald’s to market the product to customers carefully, while meeting all labeling regulations in the U.S. Gross says, “We are working on that and will figure out the packaging and marketing along the way.”

About one-fifth of McDonald’s offerings have chicken and the company generates billions of dollars from selling them each year in the country. Though the company hasn’t disclosed the exact figure of its scale, it isn’t difficult to decipher given the fact that McDonald’s is the largest restaurant customer of the biggest U.S. chicken supplier Tyson Foods. Besides, the company also purchases chicken from Keystone Foods in bulk.

Implementing the move is going to be a tricky task for McDonald’s, but Gross says that the company is already working with its suppliers for a decent time to find out ways for smoother transition. McDonald’s would encounter several barriers, but the move should bear results if the fast food giant manages it.