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 5:17PM
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Why all the hate?  If you still think fast food is healthy you deserve to be fished out of the gene pool.  That being said I love McDonalds.  I like the taste, I like the salt the grease, all of it.  Maybe I think eggplant tastes like crap and the e-coli risk is just too high for me.  It's about choices.  Why should you dictate to me where and what I eat, drink or chew on?  If you don't like it move along please as I am about to eat a quarter lb. of heaven.  I know it is bad for me so all your grandstanding about how bad it is really isn't educating anybody.  So go eat your organic carrot in the park and leave me alone.
Jan 27, 2012 5:03PM
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Initially pink slime was used to combat the effects of acid resistant E. coli in beef during the 1980s and 1990s that resulted in a well known crisis for people during that time. The cause of this type of E. coli contaminating food is due to factory farming where cattle are fed corn instead of grass. The cause of the change began in these ruminant herbivores. Ruminant herbivores are animals that regurgitate, like cows, and redigest or consume partially digest fecal matter such as in rabbits. In cattle as in humans E. coli is part of the digestive system. When the diet is changed the intestinal bacteria change as well to adjust themselves to the new digestive environment. Different people and animals have different digestive bacteria and that's why you get intestinal issues when you go to a new country and consume different foods. However, in the cattle this change resulted in an acid resistant E. coli that got on the cows while they were in confined quarters and wallowed in their own filthy. When taken to slaughter this bacteria survived on the cattle and cross contaminant with the muscle tissue that is made into ground beef, steaks, etc. The ground beef was sold to restaurants and when cooked the E. coli was not killed but in fact did the reverse. Not all the people who ate this contaminated hamburger died but some did and others just became severely ill. In order to combat this a chemical neutralizer was devised and in now present in multiple fast food hamburgers. As far as the criticism towards Jamie Oliver yes, he is calling the kettle black, however, he is bringing up valid points to people who may otherwise have remain uninformed or apathetic to what they are eating. In consideration of the quality of the meat I believe the saying "you get what you pay for" is valid here. As far as obesity goes it has multiple factors so let's not just nasay that people are fat because they are lazy or stupid because they don't work that is just unkind and untruthful. They are many reasons for obesity including hormones, genetics, lack of education and poor but learned behaviors, lack of exercise, lack or resources to purchase adequate food stuffs, lack of time, stress, etc.
Jan 27, 2012 6:25PM
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No wonder my stomach gets cleaned out every time I eat there. And BTW: Since the formula for Coke and KFC are such a guarded secret..Shouldn't we as the consumer know exactly what is in that stuff also. I thought the FDA was on our side.
Jan 27, 2012 6:07PM
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Now I know why I hate McDonald's so much.

 

I've always been more of a cat food person...

Jan 27, 2012 5:36PM
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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.

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 6:32PM
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tas2farms----I've seen the small farms all over America. Unfortunately that's not where McDonalds gets its meat.
Jan 27, 2012 6:11PM
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Isn't pink slime at least a cut above Soylent Green?
Jan 27, 2012 5:31PM
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Please note from my post below that there are people that think they have the right to dictate to me what I eat.  How important do you people think you are?  Amazing.
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 6:22PM
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Now the McDonalds TV commercials make sense. For the past Two months there has been the Cowboy's and the Lone Rancher espousing the purity of the Beef selected by McDonalds. There really is no Healthy Burger slim or no slim! By the time all the antibiotics and powders are consumed by the Cow it poison!
Jan 27, 2012 5:20PM
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Accountants tend to ruin a business if allowed to do it. Raise the damn price we all know that prices have gone up, we don't expect the 10 cent hamburgers you had years ago, we also don't make a dollar an hour anymore. These guys will kill you, supply decent food for as low a price as you can and you'll continue to be successful. 
Jan 27, 2012 4:57PM
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Lets see after the chicken debacle and the treatment and conditions those chickens received at the egg farms that produce for McDonalds, we now find out hat they are using chemicals to wash and clean until fit for human consumption what should be dog food.
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.

Jan 27, 2012 4:55PM
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Hey McDonalds, any chance you'll just make CHICKEN Mcnuggets out of chicken, breading, and seasonings?  that's how I make them at home.
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 29, 2012 1:33PM
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Okay.  I was under no illusions about whether McDonald's burgers contained more than just beef. Preservatives?  Yes.  Fillers?  Most likely.  I did not expect to find out that they had to use chemicals to "clean" the meat to even make it fit for human consumption.  I don't fault anyone for eating there- it's a cheap, quick meal that many people love the taste of, and I myself have eaten there off and on over the years.  However, I seriously have to reconsider my own choice of eating there or any other fast food place after hearing this news.  I've gotta draw the line somewhere. Eww. 
Jan 27, 2012 5:06PM
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McDonalds food is garbage no matter how you wrap it up. I personally can't believe they are still in business. I would feed my dog Wendys, but not McDonalds. I'm a busy guy and eat fast food from time to time....it just happens, but there are a ton of places that are so much better and have better selections. AND cheaper!!!
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 6:09PM
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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...

Jan 27, 2012 4:47PM
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To Sydney 10..I take exception to your totally left wing "All farms are bad" ststement..I have sat up with sick calves,pulled distressed calves at birth and spend more money on feed and medicine on my herd than I do on myelf..Most cattle raised here in texas are grown on small family farms and are well taken care of..Take a trip here someday and see for yourself..So before you start believing the PITA hipe I suggest you see for yourself what raising beef is about. As far as the use of median grade beef..If you cut it out your only going to have to kill more cattle to make up the difference..congratulations,you just increased the slaughter rate and my profits...
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