Integrity becomes central platform for McDonald’s

Jon Condon, 11/11/2011

McDonalds Lisa Isaacs presenting at Monday's AAA agribusiness breakfastWords like ‘integrity’ ‘ethical’ and ‘sustainable’ are salted liberally within any presentation by McDonalds personnel these days, and the company does more than simply ‘talk the talk’, demonstrating an increasing willingness to ‘walk the walk.’

In this context, the Australian beef industry’s moves towards stronger animal welfare credentials were acknowledged by a representative from the globally dominant burger chain, speaking at an agribusiness function this week.

Lisa Isaacs, McDonalds’ national purchasing manager for Australia and New Zealand, was addressing at Australian Agribusiness Association breakfast on Monday.

McDonalds’ operations in Australia turned 40 this year, now operating more than 850 restaurants across the country, three-quarters being owned by independents. The company’s Australian operation spends $600 million each year on primary product, including 26,000 tonnes of beef, 15,600t of chicken and 67,000t of potatoes.

On a global scale, around two-thirds of all McDonalds restaurants in 118 countries now used Australian or New Zealand-sourced beef, AAA delegates heard.

“Today, McDonalds is about playing a very real and active role in the changing needs, expectations and attitudes of both our customers and the wider community,” Ms Isaacs said.

“We have been challenged to keep pace with those changes, and in fact in many ways lead the way in both business and menu development.”

Ms Isaacs said this change process had started in 2002, with a simple, but crucial concept called ‘Food values’, under which McDonalds started speaking about the quality and integrity of its offer, and dispelling many of the myths that existed about its products. Just one of these was the rumour that McDonalds’ owned a company called “100pc Australian Beef” so it could make false claims on its burgers.

It also spent more time than ever listening to what customers were saying about product integrity, greater choice, and healthy options.

The first response was ‘Salads Plus’ launched in 2003 – a landmark event for McDonalds Australia and the food service industry in general, giving customers for the first time more choice in areas like salads, vege burgers and apples. Salt and sugar content in rolls was reduced, making them equivalent to bread rolls bought in the supermarket.

Elsewhere, all the company’s coffee requirement was shifted to ethically-focussed Rainforest Alliance growers. Maccas was also the first quick service restaurant to print nutritional information on its packaging, motivated by the desire to tell the positive story about its food.

“All these changes and many more were made as a direct response to what our customers were telling us,” Ms Isaacs said.


Premium program

The company’s next big step was into its premium menu range, including the highly successful Premium Angus program in 2009, which far exceeded sales expectations, and continues to figure prominently on menus.

“As we continue to evolve, we will ask and listen to our customers. I don’t know what our menu will look like in 20 years’ time, but I expect it will have even greater focus on our food, its quality, where we source it from, and why.”

“How we source is of critical importance to our company,” Ms Isaacs said.

“Our suppliers are our business partners, and they are equally important as the corporation and our restaurants, and are absolutely critical to the continuing success of McDonalds in Australia.”

The company’s supply management approach was to focus on the long-term relationships, underpinned by the core fundamentals of how it did business. There is no price-buying, and there are no supply contracts in place.

“The success of the partnership is based on motivation of each party to understand the others’ expectations and ensure we are working towards them. Communication is critical; therefore there is shared risk as well as shared reward,” she said.

“We need our suppliers as much as they need us – we’re happy to tell them that, and we need to demonstrate that in our actions every day.”


Sustainability focus

In discussing several specific areas of the McDonalds’ supply chain, one of Ms Isaacs’ focuses was on sustainability and integrity.

Purchasing and quality assurance departments worked side-by-side with suppliers to ensure both were meeting each other’s expectations and delivering on business priorities on product quality, integrity and cost. Transparency was critically important, to the extent that when new purchasing and QA managers are being trained by McDonalds, the suppliers are present.

Ms Isaacs said ‘sustainability’ to McDonalds came both in the assurance of supply, and also how it was produced. Sustainability of supply chain was one of the key areas of McDonalds’ corporate responsibility platform.

Quoting from a company mission statement, she said, “We envisage a supply chain that profitably yields high quality, safe products without supply interruption, while leveraging our leadership position to create a net benefit by improving economic, ethical, and environmental outcomes.”

“Today’s customers are very interested in where our food comes from, how we source it, and how sustainable and ethically-produced it is,” she said.

“This is a journey for McDonalds, and in some areas we are more advanced than in others, but we are committed to systems that include supply partners that will progress this even further.”

In the area of ethics, as it applies to beef production, Ms Isaacs said it was about humane treatment of animals throughout the supply chain.


Guiding principles govern animal welfare

“With regard to animal welfare, we have guiding principles that govern the way we operate, expressing our commitment to ensure animals are free of cruelty, abuse and neglect.”

These guidelines were based on technical standards as well as an audit program developed by internal and external experts like US animal behaviour expert Dr Temple Grandin. All beef, poultry and pork suppliers undergo third party auditing, and McDonalds continues to monitor research relating to specific animal welfare areas to ensure it is abreast of key developments.

Similarly, McDonalds’ approach to environmental responsibility focuses on sourcing and design of products to ensure their production, distribution and use minimises the impact on the environment over the entire life-cycle.

The company had worked with strategic suppliers in beef, poultry and pork to develop environmental scorecards in areas like water use, waste emissions and energy use. Those report cards, limited to processing only and not involving the production sectors at this stage, have been in place since 2005, delivering significant improvements in many cases.

Working with the World Wildlife Fund, McDonalds has identified several areas of supply focus for environmental supply chain risk. These include beef, chicken, oil, coffee and fibre used in packaging.

Last November, McDonalds joined WWF as a lead-sponsor for the first-ever global conference on sustainable beef.

“We will continue to leverage global and local expertise and knowledge, both internally and externally, to ensure we are making the right environmental and animal welfare decisions based on sound fundamentals and science,” Ms Isaacs said. 

Asked at what point the company’s animal welfare scrutiny would be extended back up the beef production chain to producer level, Ms Isaacs said it was something that McDonalds was continually evaluating.

“It is something that we in McDonalds Australia are keen to know a lot more about. At this stage there are no immediate plans, but these things evolve. There are areas like transport and on-farm practises that we are keen to know more about and work with industry to deliver something that is better for everybody,” she said.

“From what we have heard and seen so far, there are some great programs in place in the Australian beef industry already, and a lot of my role involves educating my global colleagues about what is happening here, so they can speak on the topic with some confidence.”    

Responding to a second question from Beef Central about high levels of grinding beef volatility being seen worldwide, Ms Isaacs said it was important for McDonalds to be able to provide its restaurants with competitive, predictable and stable pricing, and high levels of commodity pricing volatility was not easily accommodated within the company’s model.

“As a result we have increased our focus with our suppliers, who we consider to be the experts in these areas, to come up with ways we can deliver more predictable food and packaging costs to our restaurants, without impacting margins.”

“After a long period of relative stability, prices more recently have been much more volatile, and now appear to have reached a new platform. But there will continue to be strong demand and restricted supply out of the US. For us, it’s about managing that better through our supply chain and ensuring we can provide that predictable, stable pricing to our restaurants.”


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