Decline and fall

THE YEAR 2000 may some day be regarded as a milestone for the fast food industry. It may be remembered as the year that the leading chains began to unravel. According to NPD Foodworld, a market research firm, during 2000 the fast food industry did not gain any new customers in the United States. The stagnant sales preceded the headlines about mad cow disease and extended throughout most of the industry. Fewer people visited not only hamburger chains, but also pizza and Mexican food chains. Business did not improve in the first half of 2001. McDonald’s profits fell in Europe, Asia, Latin America, and the United States. Customer traffic fell at Burger King restaurants worldwide. Burger King’s new french fries proved a marketing disaster and were scrapped, at a cost of more than $70 million. And its parent company, Diageo PLC, had to spend millions to keep some large Burger King franchisees afloat, while searching for ways to unload the chain.

Taco Bell – a brand that in many ways perfected the art of selling inexpensive, mass‑produced, highly industrialized foods – has lately encountered some financial difficulties. In 1989 Taco Bell introduced a “K minus” program. The K stood for “kitchens”, which the chain strove to eliminate from its restaurants. Precooking the beef and the beans at central locations allowed Taco Bell to offer low prices, with most of the core menu items selling for less than a dollar. The strategy was a success during the 1990s, but eventually backfired, as Taco Bell gained a reputation for cheap, bland food. Sales at its company‑owned restaurants fell by 9 percent in the fourth quarter of 2000, causing financial problems for as many as a thousand Taco Bell franchisees. Tricon Global Restaurants, the chain’s parent company, had to set aside millions of dollars to help struggling franchisees, and PepsiCo Inc. sent them early “soda‑rebate” checks worth additional millions to keep them in the business of selling Pepsi. A major recall of taco shells – sold under the Taco Bell name only at supermarkets and containing genetically engineered corn not approved for human consumption – no doubt also hurt the brand.

Taco Bell’s problems, however, extend far beyond passing fears of tainted tacos. “We are not doing a great job in terms of quality, in terms of speed, in terms of cleanliness in the store,” Emil Brolick, the chain’s new president, confessed. The speed at which Taco Bell’s financial health deteriorated, with relatively minor sales declines threatening widespread restaurant closures, shows how vulnerable the world’s largest fast food chains have become. A 2 percent decline in sales is enough to send their stock prices spiralling downward.

The glory days of the major chains seem to be over. Smaller, regional restaurant companies are the ones now enjoying rapid growth in the United States, as many larger ones lose customers. Although the McDonald’s Corporation continues to hunt for promising new American locations (a McDonald’s recently opened at the Brentwood Baptist Church in Houston), the chain’s problems increasingly resemble those of the British Empire a century ago. For imperial Britain, rapid expansion overseas was a sign not of economic strength, but of underlying weaknesses at home. An empire that looked impressive and invincible on the map later proved to be remarkably fragile, shrinking much faster than it had grown. During the 1990s McDonald’s opened restaurants overseas at a furious pace, distracting attention from the fact that it was gaining few new customers in the United States. The mad cow epidemic in Europe, combined with economic downturns in Asia and Latin America, have created doubts on Wall Street about McDonald’s imperial strategy. It costs a great deal of money to open new restaurants on distant continents. The McDonald’s Corporation remains profitable, but now intends to grow by doubling its sales within the United States over the next decade. That goal may be unrealistic. A recent survey of American consumers found enormous dissatisfaction with McDonald’s. Among the two hundred national organizations examined in the study, McDonald’s ranked just a couple of places from the bottom.

Ever since the débâcle of the McLibel trial, the McDonald’s Corporation has tried to improve its public image and at times behave in a more socially responsible manner. During the spring of 2001 it began to offer discounts on health insurance and other benefits to employees at company‑owned restaurants in the United States, which comprise about one‑seventh of the chain. During the summer of 2001 it disclosed the basic ingredients of its natural flavors (and, perhaps in deference to Hindus, has taken the beef extract out of its McNuggets). In addition to forcing compliance with the FDA’s feed regulations, McDonald’s has required that its meatpacking suppliers handle and slaughter animals more humanely. For years, excessive line speeds and improper stunning have led to cattle and hogs being dismembered while fully conscious. McDonald’s new policy on humane slaughter did not arise in a vacuum. Animal rights groups, such as People for the Ethical Treatment of Animals, were staging protests at McDonald’s, asking the company to seek changes from its suppliers. Whatever the true motive, McDonald’s acted decisively and hired Temple Grandin – one of the nation’s foremost experts on animal welfare and proper livestock handling – to devise an auditing system for the slaughterhouses that provide the chain’s beef and pork. According to Grandin, McDonald’s threat to stop purchasing meat from companies that mistreat animals changed many of the industry’s practices within a year. Although McDonald’s auditors are employed by the same companies that manufacture its hamburger patties, Grandin says they seem genuinely committed to the new policy, making unannounced visits to slaughterhouses and observing whether animals are properly handled and stunned. When advocated by animal rights groups, such an inspection program had gone nowhere; demanded by McDonald’s, it received the enthusiastic support of the meatpacking industry and the American Meat Institute.

Having shown a strong commitment to the ethical treatment of animals, the McDonald’s Corporation should now demonstrate the same level of concern for the ethical treatment of the human beings who work in the nation’s slaughterhouses. After the publication of Fast Food Nation , the photographer Eugene Richards and I visited meatpacking communities in Texas for Mother Jones magazine. We were appalled by what we found: conditions even worse than those in Nebraska or Colorado, conditions that bring to mind the worst abuses of the nineteenth‑century Beef Trust. In Texas, the big meatpacking companies don’t have to manipulate the workers’ compensation system – they don’t even have to participate in it. Texas is the only state in the union that allows a company to leave the workers’ comp system and set up its own process for dealing with workplace injuries. Taking advantage of that unique opportunity, IBP has established a remarkable system there. When a worker is injured at an IBP plant in Texas, he or she is immediately presented with a waiver. Signing the waiver means forever surrendering the right to sue IBP on any grounds. Workers who sign the waiver may receive medical care under IBP’s Workplace Injury Settlement Program. Or they may not. Once they sign, IBP and its company‑approved doctors have control over the job‑related medical treatment – for life. Under the program’s terms, seeking treatment from an independent physician can be grounds for losing all medical benefits. Workers who refuse to sign the IBP waiver not only risk getting no medical care from the company, but also risk being fired on the spot. The Texas Supreme Court has ruled that companies operating outside the workers’ comp system can fire workers simply because they’re injured.

Today an IBP worker who gets hurt on the job in Texas faces a cruel dilemma: sign the waiver, perhaps receive medical attention, and remain beholden, forever, to IBP. Or refuse to sign, risk losing your job, receive no help with your medical bills, file a lawsuit, and hope to win a big judgement against the company years from now. Injured workers almost always sign the waiver. The pressure to do so is immense. An IBP medical case manager will literally bring the waiver to a hospital emergency room in order to obtain an injured worker’s signature. When Lonita Leal’s right hand was mangled by a hamburger grinder at the IBP plant in Amarillo, a case manager talked her into signing the waiver with her left hand, as she waited in the hospital for surgery. When Duane Mullin had both hands crushed in a hammer mill at the same plant, an IBP representative persuaded him to sign the waiver with a pen held in his mouth.

The recent purchase of IBP by Tyson Foods has created the world’s biggest and most powerful meatpacking firm, with the largest market share in beef and poultry, the second‑largest in pork. The Tyson/IBP merger fulfills every independent rancher’s worst nightmare about being reduced to the status of a poultry grower – and portend even faster line speeds at meatpacking plants. In order to complete the purchase, Tyson Foods had to assume $1.7 billion in debt. As a result, the new meatpacking colossus will likely be under great pressure to ship as much meat as possible out the door.

Over the past year, the McDonald’s Corporation has proven, beyond any doubt, that it can force its meatpacking suppliers to make fundamental changes quickly. If McDonald’s insisted that the large meatpackers improve working conditions and reduce injury levels, these companies would do so. The cost of slowing down their production lines would be insignificant compared to the cost of losing their biggest customer. If McDonald’s can send auditors into slaughterhouses to monitor the ethical treatment of cattle, it can certainly do the same for poor immigrant workers. As to the company’s ability to influence this sort of behavior, I agree wholeheartedly with the American Meat Institute: “If McDonald’s is requiring something of their suppliers, it has a pretty profound effect.” Unlike compliance with the FDA’s feed rules, which required an elaborate new system of paperwork and affidavits, it wouldn’t take weeks to make America’s slaughterhouses safer. If McDonald’s were to demand that the line speeds be slowed down, preventing untold misery and harm, it could be accomplished in an instant.