Fast-food behemoth McDonald's (NYSE:MCD) made big headlines this week by publicly committing to a change in its ubiquitous beef patties. Its goal is to start shifting its patties to environmentally friendly "sustainable" beef by 2016. That's a big and significant move regarding our food supply -- meat, particularly beef, currently tends to be a resource-intensive food that's therefore tough on the environment.
On the other hand, the twist here is that McDonald's hasn't quite figured out what the exact definition of "sustainable beef" would be in context of its commitment. It's definitely something companies need to consider when it comes to standards -- and it's a complicated process in itself.
Regardless, for McDonald's and the whole competitive food landscape, this is an extremely serious call to action. Investors shouldn't ignore the big picture.
Signs of changing menus
The timing is interesting. McDonald's announcement runs in perfect and timely parallel to last week's news that General Mills' (NYSE:GIS) original Cheerios cereal will be marketed as GMO-free, since the consumer goods behemoth has changed some ingredients to avoid genetically modified organisms.
Investors who ignore big shifts like this -- big companies committing to major social or environmental changes -- or dismiss them as disconnected from investing are missing a major trend that's building with each passing year.
When companies as gigantic as McDonald's and General Mills make commitments like these, they can really move the needle in terms of instigating change in agricultural production methods, often related to environmental concerns.
The Golden Arches has recently made a similarly significant change regarding its relationship to the food chain. McDonald's has already started moving to push its suppliers to eliminate gestation crates for breeding sows. It buys 1% of the U.S. pork supply, so when Mickey D's makes a move like this, suppliers listen -- as do competitors, making the shift even more significant.
Back to the beef: McDonald's is the largest beef buyer in the U.S., period. If McDonald's is interested in buying beef that has been raised in an environmentally sustainable manner, the biggest overall takeaway is that corporate mainstreaming of environmentally sustainable business strategies has begun. We're not talking smaller, niche players anymore. We're talking about our most powerful multinational corporations.
Timing is one of the complex parts of a change this big. When massive companies like McDonald's make these commitments, it's going to take at least a couple of years, if not much more, for these changes to actually be implemented. Turning a huge business "ship" so dramatically is anything but easy. Supply issues alone make it difficult.
For example, the oats in the aforementioned GMO-free Cheerios aren't genetically modified to begin with, so General Mills could tinker with the other minor ingredients fairly easily to meet the non-GMO standard. But for other varieties of the cereal, like Honey Nut Cheerios, there are still too many ingredients to make the change within a swift time frame without more onerous costs.
McDonald's has committed to start the shift to sustainable beef by 2016, but it isn't yet giving any specific goal for just how much of the more environmentally kind beef it will buy by that time.
However, according to reports, McDonald's is in discussions with Wal-Mart (NYSE:WMT), environmental organizations, and, of course, the stakeholder group that has a lot riding on this -- suppliers -- on exactly how to define "sustainable beef."
Wal-Mart is a good corporation to work with. The discount giant is working on a sustainability supplier index. That's a huge move given Wal-Mart's major influence on suppliers -- getting their products on the behemoth's shelves is a big sales boon for them. Here's an idea of just how big a deal this is: Wal-Mart uses 60,000 suppliers.
Last April, Greenbiz checked in on the progress of Wal-Mart's index and explained its aims. Among these quoted from a company spokesman:
- To improve the environmental performance of its most popular products.
- To further integrate sustainability into Walmart by giving responsibility to the merchants.
- To drive a productivity loop that reduce[s] costs and ultimately benefits customers.
- To increase customer trust in Walmart and its brands.
Investors should pay attention, even though such initiatives often sneak beneath the radar. Obviously, although sustainability is part of the rundown, real business benefits are also being increasingly included in such shifts: reducing costs and increasing trust in Wal-Mart, the latter of which is often a weak link for the huge retailer.
Clearly, that is a massive undertaking, and reveals the occasionally difficult ways big changes come about.
Responsibility: A new focus on an old idea
Obviously, big changes are on the way; the path has been paved by smaller companies such as McDonalds' former subsidiary Chipotle, whose Food With Integrity mission includes sustainable sourcing whenever it can include such ingredients given supply. Trends and shifting definitions of competitive advantage are likely driving the progress in these areas.
Corporations wouldn't be spending the time or the money on initiatives like sustainable or organic food if these didn't matter increasingly to the public -- their own customers. The sheer number of companies that are marketing green initiatives, providing corporate sustainability reports and building entire departments devoted to that work, or simply trying to compete with rivals to operate in more impressively sustainable way tells investors something.
The trend toward sustainability and responsibility is there, even though many investors aren't yet identifying their importance when they're simply looking at companies' straight financials or valuation metrics.
Many companies have or are formed with this kind of responsibility built into their original foundations, which is better yet. But overall responsibility and the trust that gives to the public isn't exactly an old concept. Decades of cutting corners for profits and becoming less concerned with externalizing costs have resulted in too many companies that simply aren't responsible or built for the changing definition of good corporate citizens.
Obviously, there is a long way to go and a lot to iron out. Huge beef buyers such as McDonald's do rely very heavily on factory farms and other forms of mass production to churn out all those Big Macs.
Who knows, maybe we'll see even bigger changes than we can yet imagine. Take solutions to big problems through new technology as an example. Not too long ago, Google co-founder Sergey Brin helped fund an experiment to grow beef in test tubes. This was a personal decision on his part, given his interest in more sustainable meat production, and his interest hinged on the environmental aspects of that particular form of agriculture. .
The big-picture takeaway should be that consumer desires are changing drastically toward responsibility and sustainability. The definition of competitive advantage is likely taking on some different facets as well -- many of them green and sustainable. The changes that are coming aren't a mystery -- it's time to acknowledge the trends and assess them in our business analyses to find good investments and avoid the poor ones.
Check back at Fool.com for more of Alyce Lomax's columns on environmental, social, and governance issues.
Alyce Lomax owns shares of Chipotle Mexican Grill. The Motley Fool recommends and owns shares of Chipotle Mexican Grill, Google, and McDonald's. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.