January 10, 2007

McDonald’s Offers Ethics With Those Fries

Hoping to boost its green credentials and stave off competition from upscale fast-food chains such as Starbucks (SBUX), McDonald's (MCD) has disclosed that as of Jan. 9, all of its 1,200 outlets in Britain will sell only coffee from growers certified by the Rainforest Alliance, the global nonprofit based in New York.

In a deal worth nearly $100 million for some of the world's poorest farmers, McDonald's will roll out the ethically sourced Kenco coffee across its more than 6,200 European restaurants later this year. Now, "we can offer our customers great-tasting coffee that doesn't cost the earth and benefits coffee growers, their communities, and the environment," said Steve Easterbrook, president and chief executive officer of McDonald's U.K., in a statement.

It's just the latest initiative by McDonald's to overhaul its image and position itself as a leader in the sustainability movement. Worldwide, the company tries where possible to purchase locally produced ingredients. It now obtains beef only from farmers who meet special standards on animal welfare and environmental practices. It recently implemented a global ban on growth-promoting antibiotics in the poultry it buys. And as one of the world's leading buyers of white fish, the fast-food giant has teamed up with environmental group Conservation International to protect future supplies for the Filet O' Fish sandwich. The Oak Brook [Ill.] company now sources approximately one-third of the 120 million pounds of fish it buys each year from sustainable fisheries.

Ignore the Green Agenda at Your Peril Such moves, McDonald's hopes, will increase customer trust. "Consumers more than ever want to do business with those companies that share their values," says Bob Langert, McDonald's vice-president for corporate social responsibility. "And because of our track record on environmental issues, we see lots of opportunity to close the gap between misconceptions and reality."

To be sure, McDonald's isn't the only company jumping on the green bandwagon. Heightened fears over climate change have pushed environmental concerns to the top of the political agenda, forcing multinationals from Wal-Mart (WMT) to Royal Philips Electronics (PHG) to Unilever (UL) to get serious about sustainability.

"Companies are increasingly trying to boost their social responsibility programs because they know that not to do so is a major corporate risk," says Rita Clifton, chairman of the consultancy Interbrand U.K. "Sustainable sourcing is becoming more important, especially to European consumers, so this latest move from McDonald's is a small but significant step."

A Bold Effort in Europe Indeed, it's in Europe, where a slew of public-health scares -- ranging from salmonella to mad cow disease -- have made consumers increasingly wary, that Mickey D's is taking the boldest steps. A dozen years ago, the company put in place a traceability system to track all beef purchased in Europe. McDonald's Europe prohibits the use of antibiotics in its poultry for any purpose other than disease treatment or prevention. And the ban on growth-promoting antibiotics began first in Europe in 2000.

So too did the decision to publish the nutritional content of its products, an initiative that went global last year. McDonald's Europe also is ahead of U.S. outlets in adding organic products to its menus. For instance, outlets in Britain, Germany, Sweden, and Austria sell only organic milk. And in response to consumer backlash over genetically modified ingredients, McDonald's insists that all of its European suppliers use only non-GM products and ingredients.

Such sourcing decisions sometimes get treacherous. Last April, Greenpeace International warned that some McDonald's suppliers were contributing to the destruction of rain forests in the Amazon in order to grow soybeans. The burger giant investigated whether its suppliers were involved, and within weeks, led a coalition of European food sellers in demanding new purchasing policies from the three firms targeted by Greenpeace -- Cargill, Archer Daniels Midland (ADM), and Bunge (BG). In the end, both McDonald's and the suppliers agreed to a two-year moratorium on buying soy from newly deforested areas.

Keeping Taste in the Equation Such efforts have won McDonald's plaudits from environmentalists, but critics contend the company still isn't doing enough on the nutritional front. Indeed, in Britain, CEO Easterbrook recently announced that the chain was going back to basics -- burgers, sandwiches, and fries -- after sales of healthier options such as salads faltered.

What's more, though the company pledged four years ago to switch to healthier cooking oils, initial taste tests bombed. Last year, McDonald's U.S. unit settled an $8.5 million lawsuit brought by the Web site Bantransfats.com, which has pressured food companies to drop trans fats, agreeing to donate $7 million to the American Heart Assn. and spend $1.5 million to raise awareness about the dangers of trans fats.

But once again, McDonald's Europe is moving faster to address the problem. In November, it promised to reduce the level of trans fats in the cooking oils used across its European outlets from a current average of 5% to 6% to a maximum of 2% by 2008. McDonald's is already trans fat-free in Denmark, which introduced legislation two years ago requiring that trans fats in foods be capped at 2%.

Old World Experimentation A study conducted by researchers at Gentofte University Hospital in Denmark and published in April in the New England Journal of Medicine showed a large meal of chicken nuggets and French fries at McDonald's in the U.S. contained 10.1 grams [0.35 oz.] of trans fatty acids, while the same meal in Denmark contained just 0.33 grams. By mid-2008, McDonald's Europe will bring the rest of its outlets in line with Denmark.

For McDonald's, which got more than 35% of its $20.5 billion in global revenues and 40% of its $2.6 billion in profits from Europe last year, the Old World is proving to be its seedbed of green innovation -- and image-building. That's a message they're hearing in Oak Brook.