Get ready for higher priced Chicken McNuggets

Chicken meat with fewer antibiotics will cost more for everyone

Get ready for higher priced Chicken McNuggets FREE to subscribers

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GUELPH, ON, Mar 10, 2015/ Troy Media/ – When McDonalds’ makes a statement, the fast food world listens.

Recently, the corporation announced that all chicken served at its restaurants would be free of antibiotics used on humans within two years. Not necessarily earth-shattering news, since restaurants such as Chipotle, Mexican Grill, Chick-fil-A and the Canadian-based A&W have made similar statements.

However, this is McDonalds’. It is a bold move for the fast food giant, but many wonder if this change will offset its recent balance sheet woes.

Over 1.5 billion Chicken McNuggets sold per year

Additionally, given that we have a supply managed chicken industry, there is the question whether this move will eventually make a difference to Canadian restaurants. With this announcement, procurement becomes an issue for the iconic company.

A halal version of Chicken McNuggets is even sold at some McDonald’s franchises

With 14,000 stores in the U.S. alone, it is estimated that McDonalds’ sells over 1.5 billion McNuggets a year. A halal version of the McNuggets is even sold at some McDonald’s franchises. The Chicken McNugget’s arrival on McDonalds’ menus has long been tied up in supply chain challenges. Though the company had perfected the recipe for their product by 1979, it was not available throughout the U.S. until 1983. At the time, there was no reliable supply of chicken that could meet the potential demand for the product.

Given how large the U.S. market is today, economics continue to be a huge factor in McNugget sales. This new policy on antibiotics and a two year deadline to meet compliance will only add increased pressure on McDonalds’ meat buyers.

Indeed, some claim that the new policy on antibiotic use still doesn’t go far enough, as some drugs remain on their allowable list. For example, it will still permit its chicken suppliers to use ionophores, which helps keep chickens healthy. Nevertheless, the sheer volume of McDonald’s sales warrants an incremental and prudent approach to phasing out antibiotics.

When A&W went ahead with its “no hormones and steroids in burgers” campaign, it obtained its beef supplies in Canada, Montana and Australia. Given how committed McDonald’s Canada is to sell Canadian-grown meats, this U.S. move is awkward. Our supply managed regime, which includes domestic production quotas and high tariffs on imports, can only complicate matters for McDonald’s Canada.

However, it can be argued that many Canadian consumers, as in America, are concerned about the use of antibiotics in livestock. Many societal issues transcend borders in North America, including animal welfare and environmental issues. For McDonald’s Canada, then, this is just the beginning of a very complicated journey towards synchronizing standards in order to adapt to modern consumer values. Thanks to social media, consumers are successfully pressuring multinationals to make deep, rapid changes, regardless of how obstructive the company’s business model may be. It will not be surprising if other chains follow suit.

Consumers ready to accept higher prices for Chicken McNuggets

Tensions between factions speak to the reality that the economic merit of these decisions cannot be misjudged. The chicken meat raised with the use of fewer antibiotics will cost more for everyone; it is inevitable. Antibiotics are used to reduce production costs, and while the company doesn’t expect those costs to be immediately passed on to consumers, it will eventually, once all menu pricing options are exhausted. But McDonalds’ call on antibiotics seems to suggest that consumers are ready to accept how costly it is to produce and buy sustainably produced protein.

McDonalds and many other fast food chains have come to recognize how critical supply chain-related practices are for the modern consumer. To achieve growth, fast food players will need to dictate what farming practices are socially and morally acceptable, instead of having interest groups condemning what should be unacceptable. This shifting communications tug-a-war is far from over.

Dr. Sylvain Charlebois has joined Troy Media’s growing roster of Business columnists. He is Professor of Food Distribution and Policy at the University of Guelph’s College of Business and Economics.

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