McDonald's drops 'pink slime' ingredient from beef
The push for healthier food has prompted the Golden Arches to stop using ammonium hydroxide in its burgers. Will the move hurt the company's bottom line?
By Kyle Woodley
McDonald's (MCD) clientele can finally rest easy, as "dog food" is coming off the menu at the Golden Arches.
In the wake of an outcry by the celebrity chef Jamie Oliver, McDonald's said on Thursday said it will stop using ammonium hydroxide, a common ingredient in cleaning solutions that's dubiously dubbed "pink slime," in its beef patties.
McDonald's beef producer, Beef Products Inc., says ammonium hydroxide occurs naturally in most foods and helps reduce bacteria. However, Oliver launched a personal campaign against its use in beef throughout the U.S. on his show "Jamie Oliver's Food Revolution."
According to the Daily Mail, Oliver said beef producers take "trimmings" that would normally go to dog food and wash it with the compound until it is fit for human consumption.
"Imagine how happy an accountant is. You just turned dog food into what can potentially be your kids' food," he told "Food Revolution" viewers.
A McDonald's USA senior director credited the change to the restaurant's priorities on food safety, not Oliver. But whatever the reasons, the move has been made.
If the use of "pink slime" is a great method to make low-grade meat fit for human consumption, a shift away from that and toward better meat, unless a more favorable cleanser can be found, almost certainly means higher costs.
That's not good news for McDonald's, which has taken great pains to fend off rising commodity costs for vegetables, beef and grains.
As most McDonald's workers will tell you, the fast-food chain is less restaurant, more factory. Unlike restaurants like Chipotle Mexican Grill (CMG) that are happy to shovel food at will and grow merely by adding stores, McDonald's is a lean, mean portion machine that partitions every pickle and mechanizes every ketchup squirt. That -- and its ability to purchase in seemingly endless bulk -- helps outweigh the forces of food inflation.
Any significant increase to the price of one of McDonald's staples, then, would be felt in its profit margins, which the company has seen plateau around or slightly above 20% for more than two years after a steady increase from around 10% a decade ago and which fell slightly in the most recent quarter.
What should further worry investors is the coupling of this potential hit with McDonald's less-than-bright outlook for 2012. One of the biggest problems the company has said it will face this year is volatile foreign currency cutting into its profits, but CEO Jim Skinner also noted other concerns, including ingredient costs.
McDonald's has already shed about 2% since it reported earnings Tuesday, and it's still trading at a P/E of 19, which is around its highest point since 2007. Combine that with a market that has come to expect nothing less than financial excellence from McDonald's, and future signs of weakness could be met with even harsher reaction.
Investors are currently celebrating the fast-food giant's most recent sterling earnings. But the loss of "pink slime" may in fact mean the loss of cash for what was the best-performing Dow stock of 2011.
Kyle Woodley is the assistant editor of InvestorPlace.com. As of this writing, he did not hold a position in any of the aforementioned securities.
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Now I know why I hate McDonald's so much.
I've always been more of a cat food person...
Ammonium hydroxide is just ammonia... like household ammonia. I am a chemist, and although ammonia doesn't smell or taste good, it is not a problem. Using it to disinfect marginal meat is a problem (using bad meat), but they might need to use a different disinfectant. It has been common to use ammonia... there was a big flap some years back about Food Lion using it on fish and ground beef... common practice... and they had to do a public apology and stop. But "pink slime"? Where does that come from? Unless it has a dye in it, ammonia is colorless, just like the water-white household ammonia. Maybe when mixed with nasty meat and blood, then it becomes "pink slime", but not before.
Try looking at this objectively, and reading the facts behind the issue. You know McDonald's is bad for you, DON'T EAT THERE!! They don't need to be regulated more, people need to better educate themselves. People are all too quick to hold someone else accountable for their own ignorance.
For the last cpl of months Mcdonalds have been running tv ads purporting to show where their vegetables, the meat supplies come from. It was said one time that McDonalds was the largest buyer of cattle eyeballs in the country, amazing what a company can call Beef. Kinda like the Taco Bell situation with their so called beef fillings. Of course these companies dont have to raise prices as fast as commodities such as beef rise. They are using what would be thrown away by most people and calling it good. They are probably buying all this crap at pennies on the dollar compared to what would be really considered fit for human consumption.
Baking soda, salt, vinegar, & lime juice can all be used as cleaners also. They just sound like they are bad for you when you use the chemical names. Sodium bicarbonate, sodium chloride, acetic acid, & Citrus Aurantifolia Acid and Dihydrogen Monoxide sould all be baned, Right?
Maybe McDonalds should stop using Dihydrogen Monoxide in there soda.
Ammonium hydroxide are very common compounds, found naturally in all plants and animals
By the way ammonium hydroxide is used to kill E. coli in meat. I am sure they have a cheaper way to do this now that is why they are making the switch.
Pink slime comes from the Planet Scyron in the Galaxy of Andromeda. Along with the giant blancmanges, it's a favourite food of Mr and Mrs Brainsample...
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