Several restaurant and retail chains are working to shift to antibiotic-free chicken over the next few years. This primarily implies that chickens shall not be treated with antibiotics that are harmful to human. These steps undertaken by different players may push Yum! Brands (YUM, Financial) to change its chicken too.
After McDonald’s (MCD, Financial) announcement, Reuters reported that Costco Wholesale (COST, Financial) is also aiming to sell antibiotic free chicken. Does McDonald’s and Costco’s announcement put pressure on Yum! Brands to gradually move to naturally raised poultry and minimize consuming antibiotic chicken?
Yum! Brands’ KFC may be under some pressure
McDonald’s is making a concerted plan to stop using chicken containing antibiotics in the next two years and shift to poultry that is raised naturally. The key reason behind McDonald’s announcement of using antibiotic free chicken is customer demand, which is shifting in favour of healthy food. Besides, the chain’s growth in the domestic market is stalling due to its reputation of being a fast food outlet.
McDonald’s announcement seems to have put some pressure on Yum! Brands’ KFC outlets to change from using antibiotic chicken to natural poultry. Yum! hasn’t stated the proportion in which it uses antibiotic chicken. However, it may have to soon decide on lowering the mix as the company is stepping up its efforts to attract younger and rich diners who are increasingly opting for high quality ingredients and antibiotic-free meat found in Chipotle (CMG, Financial) and Panera Bread (PNRA, Financial). These fast casual chains are gaining popularity because of their fresh produce.
A couple of years ago, Yum!’s KFC restaurant in China witnessed a huge setback due to the report provided by the local media stating that the suppliers were supplying chicken with excess level of antibiotics. Yum! runs around 4,800 KFCs in China, and getting involved in a scandal like this ruined its reputation so much that the company is still suffering from its adverse impact.
Despite taking steps of cutting ties with as many as 1,000 poultry farmers, comparable store sales have remained weak in this market. And Yum! can’t afford to be losing in the Chinese market as it makes for more than half the company’s revenue and operating income. So phasing out antibiotic chicken could support Yum! and help it regain the trust of its Chinese customers.
What to expect next?
McDonald’s is said to be closely working with its stakeholders including environmental groups to build guidelines for the usage of chicken in the U.S. In contrast, Yum! has kept itself away from discussing anything pertaining to its antibiotic policies. The only thing that the company said in response to an email from Reuters is that: "The chicken served in our U.S. restaurants is USDA high quality, and free of antibiotics."
According to an investigation performed by Reuters, one of KFC’s suppliers, Koch Foods, has been found of using an antibiotic that helps fight infections in human. The supplier intends to continue using the antibiotic. Another KFC supplier Tyson Foods preferred not to comment in this regard. Other poultry suppliers supplying Yum! also declined to make any comment, and the rest couldn’t be reached.
Parting thoughts
Considering the way Yum!’s peers are moving ahead with the plan to gradually eliminate the usage of antibiotic chicken, the Louisville headquartered company might have to plan out the same to stay competent. Obviously, the transition from antibiotic to naturally raised chicken would be a challenge, as the supply chain would be stressed, however it’s imperative to the company’s growth in future as it would help attract a wider customer base. There’s no doubt that Yum! too would have to convert its menu to antibiotic free chicken eventually - it’s only a matter of time.
