McDonald’s Corp., one of the companies that ignited demand for cage-free eggs, made the switch in order to bring itself in line with the values of its consumers.
That’s what two of the Oak Brook, Illinois, fast food chain’s executives said during an appearance at April’s Egg Industry Center's Issues Forum in Chicago. Jill Scandridge Manata, vice president of global public affairs and management, and Dr. Justin Ransom, senior director of supply chain management and quality systems, explained why the company made its September 2015 announcement and how its suppliers are adjusting to the move.
While consumers may not be clamoring for cage-free eggs, Manata said the company believes going cage-free will help keep them coming in the door in the future.
“It’s more about whether or not we’re connecting with what we believe our customers ultimately are going to support and continue to visit our restaurants and continue to pay the prices at whatever we have to set them at in order to give them the food they are looking for,” Manata said. “Our angle is to drive the menu and an experience that our customers look for again and again when they come to McDonald’s.”
Dr. Justin Ransom, senior director of supply chain management and quality systems at McDonald's Corp. | Terrence O'Keefe
Doing business in the age of the buyer
The golden arches experienced a rough patch in recent years as global consumers are bombarded with choices in the fast-casual restaurant sector. According to the company’s U.S. Securities and Exchange Commission filings, McDonald’s saw its total revenue fall to $25.4 billion in 2015 from $28.1 billion in 2013. During the same period, its gross profits shrunk to $9.8 billion from $10.9 billion.
Ransom said McDonald's experienced four straight years of declining overall sales, but the trend reversed with the chain’s October 2015 launch of all-day breakfast in the U.S. Ransom said the move was made in response to consumer demand and reflects the company’s new focus on engaging with consumers and making its business decisions based on their desires. Its customers responded by giving McDonald's one of its best ever quarters in the U.S.
“The world has changed and, to be relevant in the future, especially in the food industry, we must be customer obsessed,” Ransom said.
This focus is part of what he called the age of the buyer, or a sweeping change in business where increased dissemination of information and choices provided through the internet is giving the customers more power to set the agenda than the retailers. To stay relevant in this era, and combat misinformation about the company, McDonald’s launched a digital-focused initiative to speak with its consumers and answer its questions, Manata said. One of the largest results of that project was the consumer’s desire for more transparency.
Jill Scandridge Manata, vice president of global public affairs and management at McDonald's Corp. | Terrence O'Keefe
Cage-free and the consumer
Part of the transparency McDonald’s and its customers desire is the knowledge that farm animals are treated humanely. Along with a desire for a more sustainable and nutritional supply chain, Manata said, consumers want to know the animals providing their food are treated well.
Manata said the company’s concern about the treatment of laying hens dates back to the 2000s, when it established a housing standard calling for more space for the birds. Those efforts, and monitoring the market, led to questions about the chain’s desire to go cage free. To learn more about the implications of that choice, McDonald’s supported the Coalition for Sustainable Egg Supply. The publication of the group’s research findings in 2015 educated the company on what the impact of cage-free housing would be on overall food affordability, bird welfare, food safety, worker health and safety and sustainability.
The results of the coalition’s research were important, Manata said, but the chain also had to take into account variables it considered to be just as important: the consumers' views on cage-free, what they think is responsible, how those views might shift over time. The company also spoke with producers to see what they predicted for the market and if better cage-free performance was on the horizon.
“Decisions like this, again, are things that we take very seriously. We do try to take the time to get informed … it’s really important that we understand how our suppliers and the producers that work with them are going to be able to deliver on such a commitment,” Manata said. “We considered the best science available …. and ultimately looking at the consumer insights – and recognizing that they still placed the cage-free at the highest level – we wanted to understand ultimately what would it take for us to do that in a way that we thought responsible.”
The costs of going cage free
Manata explained the 10-year timeline – the company plans on serving only cage-free eggs in the U.S. and Canada by 2025 – was important because it gives McDonald’s suppliers enough time to adapt their operations and possibly close the efficiency and cost gaps between conventionally raised and cage-free eggs.
During a question-and-answer session, Ransom and Manata explained what kind of cost impacts they expect for their products as cage-free egg products are rolled out in the coming years.
Ransom said the company will continue to work with suppliers to figure out what types of cage-free housing works the best in terms of performance and cost impact. He said it’s going to be a journey and compared it to the company’s work on moving toward group housing for sows for its pork suppliers.
As to how the company will absorb possible price increase, Ransom said McDonald’s will take advantage of the 10-year ramp-up to spread out the costs of switching to cage-free housing. The price of menu items the consumer pays typically increases over time, Ransom said, but the company is committed to working with suppliers to manage inflation.