It’s the world’s largest restaurant chain, serving 27 million customers daily so there’s a lot McDonald’s gets right. Yet over the past five years, the stock has sharply underperformed the S&P 500 (+50 percent vs +82 percent) and an examination of the sales and profit growth prospects for the company, vital indicators in the cyclical consumer sector show McDonald’s lagging in all key areas. Long-term growth estimates for the company at 6.3 percent are almost half that for its peer group (which includes Yum! Brands Inc and Wendy’s), while McDonald’s revenue growth for the current year is forecast at -5.6 percent vs. +5.6 percent at its rivals.
A new chief executive was installed on March 1, 2015 (a Brit, as it happens) and one of the first corporate releases on his watch has been to report a further slide in sales for February 2015, with revenue in the US dropping by four percent on a year on year comparison and globally by 1.7 percent on the same basis. Many of the complaints by consumers revolve around the size of the menu (nearly 200 items) and the perception by a growing section of consumers that they are not healthy. A few days ago, on March 5, McDonald’s hit back, announcing that for the next two years it will phase out the rearing of chickens treated with ‘shared use’ antibiotics, those that are also used by humans. It will also only start to sell milk from cows that have not been treated with the artificial growth hormone rbST.
According to research published in 2013, a ‘post-antibiotic era’ is starting according to the US Centers for Disease Control and Prevention (CDC), with this ‘growing epidemic’ costing the US $55 billion every year. 80 percent of synthetic antibiotics taken in the US are given to healthy animals, to assist the growing and fattening process, and as a preventive measure to minimize future infections and illness. On a farm, antibiotics do not need to be administered by a vet, so their use and abuse has been going on unrecorded since the 1940s. This was fine when a flow of new antibiotics were coming to market, but there has been a marked slowdown in new antibiotic development over the past two decades and in 2013, just five out of the 506 drugs in development in the US were antibiotics.
Resistance to antibiotics spreads quickly between humans, animals and crops. Humans are vulnerable when they consume livestock fed with antibiotics, ingest crops grown in contaminated manure or come into contact with antibiotic-resistant humans. Resistance is easily passed on, resulting in a vicious cycle. Similar sentiments were contained in a report released by the World Health Organization in 2014 (WHO) stating that antibiotic overuse is occurring throughout the world, with the ability to affect anyone at any age. No new class of antibiotics has been discovered since the 1980s and so the collective effectiveness in treating a range of serious but common diseases such as bloodstream infections (sepsis), diarrhoea, pneumonia, urinary tract infections is fast eroding. This last grouping of antibiotics were effective when they were introduced 30 years ago, but are now ineffectual in more than half of patients with some of the conditions described above.
The situation is worse than it appears. It is not just a case of US poultry farmers administering a range of antibiotics to their flocks for primarily commercial considerations, but the doses are administered in low levels. This makes them particularly conducive to the incubation and growth of superbugs as weaker bacteria are killed but the stronger ones survive and breed. The result to date is that on an annual basis an estimated 430,000 people in the US fall ill because of food borne bacteria that is resistant to antibiotics[1], and a further 2 million are made ill annually because of infections resistant to antibiotics.
A similar announcement was made at the same time by Costco, the third largest retailer in the US. To eliminate the sale of chicken and meat from animals supplied with ‘shared-use’ antibiotics. Apart from moves by corporates, the US Food and Drug Administration (FDA) is also moving slowly to regulate the consumption of antibiotics by poultry and livestock. Voluntary guidelines have been introduced and antibiotics utilized for growth promotion will be phased out by December 2016.
Weaning McDonald’s chicken suppliers off feeding their flocks unnecessary and harmful synthetic antibiotics sends a powerful signal to consumers that positive change is on the way, and it opens up great opportunities for naturally sourced alternative antibiotics. The degree to which consumers respond to this mea culpa remains to be seen and it is worth noting that McDonald’s first mooted a policy on restricting antibiotic use in 2003, but as with the current FDA legislation there were too many loopholes to make it effective. Now, 12 years later a more comprehensive effort is underway – better late than never.
[1]CDC, June 2014