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 InvestorPlace Jan 27, 2012 2:10PM

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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58Comments
Jan 27, 2012 4:41PM
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Really.

 

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. 

Jan 27, 2012 4:40PM
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I haven't had a McDonald's burger in nearly 20 years.  Not because they're unhealthy, lord knows I don't have the best diet, but because they taste horrible.
Jan 27, 2012 4:38PM
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This explains why fast food prices have been able remain stable while food prices have soared.
Jan 27, 2012 4:38PM
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Rex, studies have showed that Americans are getting exercise, it is our diets. Remember when the government kept telling everyone to buy better mileaged cars and so, everyone did and now look at the price of gas. It is the samething all over again. The government tells the Average American to stay on a 2000 calorie diet with 300 grams of cabs and says this will make you skinny. The problem with that is, unless you are in serious training, weights, marathon, triathalons, etc. You do not need 300g of carbs. Simple as that. Fat does not make you fat. Saturated fats do not clog arteries. Starches, sugars, and hydrogenated fats/oils do. Also, too much polyunsaturated fats will lead to artery inflamation. Animal fats, natural oils/fats (oils that do not require chemicals to extract the oil aka hydrogenation) are not only healthy, but many vitamins cannot be absorbed into the body without them. People need to quit listening to these so called experts that have agendas and do their own research.
Jan 27, 2012 4:28PM
Jan 27, 2012 4:28PM
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Hmmm, I see someone loves Jamie Oliver. I tell th etruth, and I get a thumbs down. Fact: The U.S. has a 75% overweight/obesedy rating while the UK has a 61% overweight/obesedy rating. You can thumbs down me all you want, I have statistics and proof on my side. Don't like it, prove me wrong. While 75% is hidious, and the US should be ashamed of themselves for pushing Grains and other carbs as healthy, the UK, and their citizens shouldn't be too quick to point fingers. All I ever heard overther was we Americans are so fat, as the sat there eating curry everynight and drinking 5-6 pints of cider, or beer. Ancel Keys was the worst thing to happen to the American diet!
Jan 27, 2012 4:26PM
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And why would I want to feed something that bad to my dog either?

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?


Jan 27, 2012 4:24PM
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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.

Jan 27, 2012 4:14PM
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I haven't eaten at a McDonalds in twenty years, or any other fast food factory in over seven years. If they want profits, serve healthier, better tasting food. Why should they be any different than a Panera Bread, for instance?
Jan 27, 2012 4:07PM
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Ok, I get how this is disgucting and all, but why is Jamie Oliver so concerned about America, when his own country isn't that far behind in obesedy or diabeties. I used to live in the UK for four years, trust me, they have no room to talk about Americans.
Jan 27, 2012 3:58PM
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Say what you will (and again, I'm NOT defending McDonald's), the recipes in his book are PROVEN to be calorie bombs, and that's not "Big Food" talking, it's health professionals. He may have a point, but it's also a case of the pot calling the kettle black. It's the thief accusing the murderer. He's not some hero here, and if he's going to question something someone else is doing, then someone should question what he is doing.
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.
Jan 27, 2012 3:57PM
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Seems like it would be an easy decision for most people to make, but I'll bet it was a real tough choice for those McDonald's executives.
Jan 27, 2012 3:56PM
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McD's has the most tasteless burgers I have ever eaten.  I can't imagine why people choose to eat there.  The only thing they have on any of their competitors are the fries.  McD's has the best fast food fries IMO.  I hate to imagine how bad McD's burgers would taste before they were "slimed."
Jan 27, 2012 3:56PM
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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.

Jan 27, 2012 3:27PM
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A double whammy! Lose customers because of the slime (info), lose investors because the lack there of....
Jan 27, 2012 3:21PM
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Of course he received 1 of the 5 worst 30-Minute Meals cookbook and questioned about his calorie content. Big food companies wouldn't have it any other way. Isn't funny how as soon as he questions "pink slim" and other practices like school lunches his work is then questioned? Jamie Oliver is on to something that a lot of us ignore until we are 300 lbs. or diagnosed with a disease associated with being fat.

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.

Jan 27, 2012 3:13PM
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After reading this letter just thinking about McDonalds makes me sick.  It seems fast food places are working overtime to give you low quality at a high price.
Jan 27, 2012 2:54PM
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Not to defend McDonalds, but isn't this the same Jamie Oliver whose recipes have been questioned for their calorie content, and also had his 30-Minute Meals cookbook voted as one of the 5 worst of 2011?
http://www.dailymail.co.uk/news/article-2080289/Jamie-Oliver-meatball-sandwich-Chef-blasted-heart-at​tack-recipe.html
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