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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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.
It's not fine for any creature, human or otherwise. 99% of the meat in the U.S. comes from factory farms that are environmental disasters, risking human health around them. Animals live tortured lives, are pumped full of drugs and hormones, and then inhumanely slaughtered. And then we ingest this junk, whether from McDonalds or the grocery store.
When do we as consumers start demanding better?
Is a burger for 10 cents cheaper really such a bargain when weighed against the larger costs?
Who goes to Mc Donald's or other fast food places, for Health food?? People are "over weight" because of a lack of exercise NOT consumption. When I worked I maintained my weight, since I've been unemployed I've gained it. I went back to work I lost it. Became unemployed I gained it back... see the connection? No matter the reason or justification you do not have that right to tell anyone what to eat or how much...
I've seen "health freaks die of all those things that "unhealthy" people have. Maybe these "fat" people are in protest to the fools who believe they have a right to dictate their demands onto those who have a true right to do as they please no matter how much you preach both sides of why it's good or bad for you.
Proof of it all. You would not eat something if someone told YOU what to eat, or anything else for that matter, so why do it to others? Why do you do it, that's simple, you want to control others because you have no control of your self... or worst, you deny yourself certain pleasures and therefore no one can have them. Do not preach unless you want to be preached to.
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.
So what's the problem with humans eating low-grade meat? My cousin has always has a fondness for canned dog food; she's still eating the stuff now, in her 60s, simply because she likes it. And you know what? She's never been sick a day in her life. She got me eating the stuff myself, too, and my health has improved remarkably since I did. So get off your high horses. Complain about the cleaners used, because some of them can indeed be harmful, but quit snubbing the so-called "low-grade" meats.
Who cares if McD won't have a stellar quarter. When it comes to the health of your customers that should come first. Money over life? The fact that some will actually select money is disgusting and I am glad McD actually made the right decision.
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