Will Health Fears Over Processed Meat Hurt MCD Stock?
As if McDonald’s Corporation (NYSE:MCD) was not already dealing with enough threats from the emergence of a new style of fast food restaurant chains like Chipotle and feistier traditional competitors like Burger King (now trading in conjunction with Tim Horton’s under the Restaurant Brands International (NYSE:QSR) umbrella), it now has a new threat to contend with. MCD stock could drop significantly if even a percentage of its many customers worldwide choose to shun its fast food chain due to a recently published World Health Organization (WHO) report that warns consumers that red meat causes cancer.
Those who own or follow McDonald’s stock may be too busy enjoying the rally that started on October 22, propelling shares to a new all-time high of $113.00, to have paid any attention to the WHO’s report. Admittedly, Europeans lean toward following the United Nations organization’s suggestions more than Americans, but McDonald’s is a worldwide restaurant chain that is focused on beef products. The performance of McDonald’s stock is not isolated to U.S. sales. The report might say that meat is a hazard to humans, but there remains room for debate. Regardless, the report is a definite menace to McDonald’s stock performance.
For the time being, it seems the world has many carnivores. The points raised by the WHO over red meat’s carcinogenic risks have not triggered a wide-scale psychosis. Predictably, the State of California is considering the possibility of including red and processed meat in its list of potential carcinogenic foods, meaning the potential addition to warning labels on the packages of products that contain these foods.
WHO Report Might Crimp McDonald’s Margins
However, the complete documentation for the anti-meat study has not been released yet; it’s expected to be available to the public in early 2016. What is certain, however, is that research has done much to arouse meat businesses’ concerns. It is too early to say whether there has been a drop in the consumption of cured, processed, and red meats as a direct result of the WHO’s recent contentions.
Indeed, if the WHO truly wanted to curb meat consumption, they should have yelled “mad cow” in a popular steakhouse. The threat of Bovine spongiform encephalopathy (BSE, or the scientific name for mad cow disease) would have been a better deterrent.
Meanwhile, the World Health Organization has toned down the controversy, noting that with its report, it did not intend to recommend consumers avoid meat at all costs. Despite ranking processed and red meats alongside smoking as cancer risks, the researchers of the study suggest that a more moderate consumption of these meats may reduce the risk of colorectal cancer. The WHO reported that 34,000 people die each year due to complications arising from excessive processed meat consumption. This is a low figure compared to the millions of deaths attributed to smoking.
The “ignore the WHO” approach is understandable. Much more research is needed before we allow a report to jeopardize an entire industry that employs millions of people globally. As mentioned, it is still too early to judge what, if any, effects the report has had on meat consumption, but McDonald’s has not suffered any noticeable drops. MCD stock is seemingly as hot as a well-done steak.
Here’s the Bottom Line on MCD Stock
Indeed, rather than suffering, McDonald’s stock can gain, exploiting the call for healthier meat consumption to grow by diversifying its products and improving its quality.
McDonald’s is trying to bounce back. Overnight from Tuesday to Wednesday, the fast food chain announced new measures to ensure its long-term growth. McDonald’s wants to increase its ratio of franchise stores to 91% (a level similar to Burger King) in order to achieve some $500 million in savings by 2017, continuing to sustain MCD stock’s current strength.
Taking a cue from the WHO, McDonald’s stock can gain from the company’s efforts to revamp what it considers its typical restaurant, aiming for a higher quality standard. Starting on November 6, McDonald’s launched a salad bar at a Geneva store, experimenting with this new concept by serving varieties of salads and aiming for greater freshness in tandem with its fast service.
Additionally, in early April, the company tested full-service at one of its Swiss stores. McDonald’s also invested in new service technologies, including a self-ordering system with an electronic payment terminal. Once they’ve ordered and paid electronically, the customer receives a ticket with a number for their order, which they pick up at a separate counter space.
Similarly, the company plans to launch a self-order smartphone application that will also allow for further menu control online. If this new challenge materializes, Switzerland will be the second country in Europe to launch the app after England.