Monday, April 9, 2012

McDonald's (NYSE: MCD) Pursuit of Perfect Fries Risks Overpromising

McDonald's (NYSE: MCD) Pursuit of Perfect Fries Risks OverpromisingChicago, IL 4/9/12 (StreetBeat) -- Biting into a McDonald's Corp. (NYSE: MCD) French fry should be like "walking on freshly fallen snow."

Barbara Booth, the company's director of sensory science, was presiding over the fast-food giant's semi-annual French Fry Evaluation -- a contest among McCain Foods Ltd., ConAgra Foods Inc. (NYSE: CAG)'s Lamb Weston and J.R. Simplot Co. to cook perfect versions of McDonald's "World Famous Fries."

"Close your eyes," Booth told the three executives and 11 supplier representatives as they sniffed, sampled and spit fries in a ritual akin to tasting a Napa Valley Pinot. "If you can't tell what you're eating in three seconds, there's a problem."

As chains such as Five Guys Burgers and Fries and Smashburger attract diners looking for a better burger, McDonald's is more than ever focused on the quality of its food. And in an age of 24-7 social media and hyper-informed consumers, the world's largest burger chain is being forced to open up about the provenance of its beef, potatoes and more.

In January, McDonald's began featuring online homages to its suppliers. In one "Supplier Story" video, Frank Martinez, who farms about 1,000 acres of potatoes (400 hectares) in Warden,Washington, brushes the dirt from a spud, slices it and declares: "Good potato!"

While sales growth at McDonald's stores open at least 13 months has exceeded 3 percent for two years, the company is "mindful American consumers are wanting more education than ever before," said Mark Kalinowski, an analyst at Janney Montgomery Scott in New York. "They want to make sure that they are not losing business to competitors that do a better job at communicating this type of message."

Conversation Change

Providing more information about the McDonald's menu is also a way to change the conversation, according to Michael Jacobson, executive director at the Center for Science in the Public Interest, a Washington-based advocacy group. Locally sourced potatoes don't change the fact that a large order of McDonald's fries delivers 25 grams of fat.

McDonald's tries "to come across as warm and fuzzy," Jacobson said. "They don't show the frying of the potatoes" which "end up far higher in calories than they start out at."

Last year, McDonald's store owners received an e-mailed call to arms from the chain's U.S. President Jan Fields. The industry has been "negatively impacted" by "food and product safety concerns," Fields wrote. "Our ultimate success will require a fundamental shift in how we approach Brand Trust and how we incorporate these efforts in to everything we do."

More Questions

Americans "have more questions about where their food comes from -- whether they're purchasing it from McDonald's or whether they're purchasing it from a grocery store," said Heather Oldani, a McDonald's spokeswoman. "We've just started to scratch the surface with the ‘Meet Our Suppliers' campaign."

McDonald's is making other efforts to come clean about its food. Earlier this year, the Big Mac seller said it will require its pork suppliers to phase out the gestation pens that animal- rights groups have long deemed cruel to pigs. The move follows that of Chipotle Mexican Grill Inc. (NYSE: CMG), which more than a decade ago began requiring its suppliers to raise pigs outside or in large cages and use antibiotic-free and vegetarian food.

Five Guys and Chipotle locally source their food. Some Five Guys locations post signs identifying the specific farm where their potatoes come from and the burrito seller tries to source veggies from nearby farms, defined as being within 350 miles of a restaurant, when practical.

Food Origin

While McDonald's took to Twitter about two years ago to get feedback on its menu and stores, it's now focusing the online conversations on suppliers and food origin, said Rick Wion, the social media chief, whose nine workers regularly send Twitter followers to YouTube videos about growers.

"We're continually looking at ways we can promote our suppliers and talk about what goes into our supply chain," he said. "We get questions about it all the time."

McDonald's would be best to proceed with caution in telling its food and supply-chain story, said Dick Adams, a San Diego- based restaurant franchisee consultant and former McDonald's store owner.

"There's no way that they can keep up with the smaller chains in terms of sourcing locally," said Adams, who says there's nothing wrong with McDonald's food. "They have to be careful they don't overpromise."

The emphasis on fries is no accident. McDonald's serves about 9 million pounds of them worldwide each day. And its competitors aren't standing still, according to Darren Tristano, executive vice president at the Chicago-based researcher Technomic Inc.

Fry Prepping

McDonald's suppliers spend weeks prepping for the fry evaluations, according to Ken Haynes, director of global quality at Lamb Weston: "It's a big deal."

The sampling began at 9 a.m. with the 15 tasters crowded around a large, rectangle table. Bottled water and unsalted crackers were on hand as palate cleansers.

Cooks in white lab coats served the first sample, the so- called "gold standard." The tasters waited two-and-a-half minutes and then got started. Three fries were eaten on the first bite to discern unwanted buttery, sour or reheated potato flavors. The tasters scribbled notes on a score sheet -- rating the fries on appearance, texture/mouth feel and flavor/aroma.

Booth pointed out black spots, dehydrated ends and oily and limp fries, all of which hurt a sample's score.

Eighty minutes later, a winner was declared: Lamb Weston, which for the second time in a row had triumphed with a sample from its American Falls, Idaho, plant. The final score was 95 out 100 points -- showing there was still room for improvement.

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