Shane Commentary

 

Chipotle Battles to Regain Customer Loyalty

Jul 19, 2017

    

Same store sales data for 2016 indicate a progressively improving situation for Chipotle Mexican Grill after the disastrous losses experienced following the multiple foodborne infections which closed restaurants and repelled customers.

Net earnings in FY 2015 attained $475 million compared with $23 million for FY 2016. The four quarters of 2016 compared to the corresponding quarters in 2015 demonstrated percentage declines in same-store sales of -29.7; -23.6 and -21.9 respectively with a trend to a turnaround in the fourth quarter to -4.8 percent.

Chipotle stock (CMG) peaked at $749 on August 3rd 2015.

  

Steve Ells

The trailing 12-month (ttm) price of CMG has fluctuated in a range of $352 to $499. At noon on July 17th CMG traded at $392, last recorded on June 17th 2013. With a forward PE of 32.5, a ttm operating margin of 4.3 percent and a profit margin of 2.3 percent, the Company had better have a sure-fire recovery plan better than a new cheese burrito to restore investor confidence. 

The reversal in the downward trend in same-store sales was accomplished at high cost with promotions including free food and other inducements. Chipotle is currently advertising the quality of ingredients but appears to be sidestepping the issue of safety.  The company has also experienced other distractions including a data breach and negative publicity relating to payment of overtime.

Global Data has conducted research on Chipotle Mexican Grill and has determined that the decline in transaction frequency among loyal customers has not regained momentum.  Increases in price have not helped in this respect. Steve Ells considers his enterprise to be a casual dining chain in the mold of Panera Bread, Chilli’s or even The Cheesecake Factory! No way, just hype and chutzpa. A restaurant which operates a menu board and serves from a steam table is effectively a fast-food venue. Research has demonstrated that the majority of lunch-time customers do not dine-in.  Generally suburban storefront operations, some erected on outparcels or located in strip-shopping malls do not have a drive-thru which is an important contributor to sales volume and customer convenience for QSRs.

Some analyst have pointed to the recovery of Jack-in-the-Box following the cluster of E. coli outbreaks in 1993.  The recovery of that chain within a year was due in large measure to the fact that only a single pathogen was involved. The cause was rapidly identified, appropriate steps were taken to increase cooking temperature of patties and the problem was resolved within a week accompanied by appropriate crisis control.  Chipotle demonstrated the characteristics of a slow-motion train wreck with an exceedingly amateur response to outbreaks which stretched from coast to coast over five months and involved at least four pathogens, denoting profound deficiencies in their supply chain and quality control. 

The future recovery of Chipotle same-store sales has less to do with food safety than it does with image and perception.  If the chain is regarded as a high-priced fast-food enterprise it will not regain its former luster.  If it can successfully recast it image as a casual dining operation, it has a chance to regain customer loyalty.  Since the disasters of 2015, other chains have moved into the Chipotle space and have acquired the relatively narrow demographic representing their core customers.

   
 

New Enteric Viruses Isolated

Jul 12, 2017

    

With funding from U.S. Poultry and Egg Association (Project 684) Dr. Michael Day of the USDA-ARS Southeastern Poultry Research Laboratory and his team have isolated and investigated the pathogencity of a new group of enteric viruses affecting turkeys.

Advances in molecular biology including simultaneous characterization by metagenomic analysis permits identification of new disease agents.  The specific causation of runting and stunting syndrome in broilers and poult enteritis complex in turkeys are thought to be associated with enteric viruses interacting with other intestinal pathogens and environmental factors in a synergistic relationship. 

  

Application of deep sequencing of viral nucleic acid of viruses isolated from turkeys with enteritis yielded a novel picobirnavirus in addition to a picornavirus. Intestinal homogenates containing the picornavirus when inoculated into day-old commercial poults reduced weight gain.  The research team was able to propagate the picocornvirus in embryonated turkey eggs. This advances the ability to further characterize the agent and eventually prepare a vaccine.

   
 

Conflict Over Cuba Policy

Jul 12, 2017

    

Moving rapidly away from the policy of the previous Administration, President Donald J. Trump has argued that enhanced trade and travel with Cuba benefits the regime and not the citizens of the island nation. In 2015, exports of U.S. agricultural products to Cuba amounted to $180 million, down 40 percent from the previous year.

  

Diplomatic and policy decisions are linked to trade. Canada exported 8,000 metric tons of pork to Cuba, compared to 1.6 metric tons from the U.S. in 2016. For the first four months of 2017, Cuba received 63,000 tons of broiler parts valued at $42 million, a 67 percent increase in volume and a 97 percent increase in value compared to the corresponding four months in 2016.

Increased sales could be achieved if conventional facilities for credit were allowed since at present, Cuba is required to pay for all food and medical essentials from the U.S. in cash. Proposed regulations will prevent U.S. companies from doing business with quasi-government agencies. Given the centrally-planned economy in Cuba, there are virtually no independent commercial entities and the proposed regulation would appear to be unduly restrictive and unrealistic.

The present Administration has clearly received support from predominantly agricultural Midwest states on ideological grounds incorporating conservative social and economic principles. Unfortunately there are conflicts between policy and reality when it comes to trade. The Devil is in the details and some recent decisions formulated in Washington have the potential to impede exports.

The agricultural community and specifically the broiler industry look to the influence and practicality of Dr. Sonny Perdue as Secretary of Agriculture to advocate for farm exports in the Cabinet and to prevent an erosion of sales to our second largest importer of broiler products.

   
 

Deforestation Emerging as an Issue with QSRs Serving Burgers

Jul 5, 2017

    

Burger King has pledged to eliminate deforestation as a factor from their supply chain by 2030 in the face of criticism from environmental and vegan groups.

Restaurant Brands International, the owner of Burger King, Tim Horton’s and Popeye’s Louisiana Kitchen, has traditionally been active in issues relating to welfare, banning of antibiotics and sustainability. The issue of deforestation is perhaps the 600-pound gorilla in the room in relation to beef derived from Brazil and other nations in Latin America.

  

Organizations such as Mighty Earth and The Union of Concerned Scientists has characterized the company environmental stance as embarrassingly weak and as “slow action.”

Glenn Horowitz of Mighty Earth stated that over 30 years, 270 billion acres of rain forest have been destroyed to make room for cattle production mainly to produce beef and burger patties. The Union of Concerned Scientists claims that ten percent of global greenhouse gasses are derived from deforestation in Latin America and Indonesia.

Recently U.S. imports of beef from Brazil have been suspended based on concerns over the reliability of their inspection system and the high rejection rate as a result of imperfections detected by the FSIS.

It is noted that chicken, which is becoming more popular based on health considerations and price, is derived from existing corn and soybean crop land with a far lower potential to produce greenhouse gas emissions.

   
 

Evidence That LFTB Was Under Pressure Before ABC Program Aired

Jun 28, 2017

    

Evidence presented by Defendant, ABC Network, at the Elk Point, SD trial indicated that the image of Lean Finely Textured Beef (LFTB) produced by Beef Products, Inc. (BPI) the Plaintiff, was the subject of negative publicity and declining sales prior to airing of the allegedly defamatory ABC program.

 

During the period 2009 through 2012, BPI experienced a 60 percent decline in sales with major chains including McDonalds, Burger King and Yum Brands banning the product in 2011. Despite this reverse, representatives of BPI noted that sales projections for 2012 had been increased.

BPI was apparently impacted by negative postings on websites referring to LFTB as “pink slime” The situation was exacerbated by Rush Limbaugh who opined on March 6th that the Federal government was negligent in allowing “pink slime” to be incorporated into ground beef for the school lunch program.

It was the obvious intent of ABC to show that damages experienced by BPI preceded their broadcast on March 7th and that their program was not responsible for the resulting precipitous decline in sales. This led to closure of three of four BPI plants, laying off workers and experiencing a loss in sales approaching $2 billion.

An unsettling revelation was that the General Counsel for BPI, Rich Jochum admitted to posting items positive to BPI and its product in online forums using a false identity.

Evidence relating the two distorted web posts both for and against LFTB confirm the polarization and unreliability of website comments which relate to intensive livestock production, nutrition, public health and other issues relevant to the poultry industry.

   
 

Are We Being Misguided by Surveys of Questionable Value?

Jun 28, 2017

    

Supermarket News reported on the Food Marketing Institute 2017 U.S. Grocery-Shoppers Trends Report prepared by the Hartman Group.  This document confirmed that shoppers want transparency and assurances of food safety, contribution to wellness and a close connection to food.

  

The survey revealed that eight percent of consumers have no primary store.  Approximately 11 percent of the respondents used online shopping with the same proportion using ethnic and convenience stores respectively. Natural stores were favored by17 percent and Limited Assortment stores by 25 percent of respondents.  Consumers considered that discount stores, supercenters, Dollar clones, drugs stores and value-focused stores lacked transparency. 

A report is only as valuable as the design and implementation of the survey, the demographic and interpretation of results. In this case, the FMI-commissioned report by Hartman which focused on transparency appears to assign a low consumer confidence to value-focused stores, presumably deep discounters such as Aldi.  As a privately held company, Aldi does not release data but it is evident from industry information that the company has achieved increases in same-store sales and is undertaking a rapid expansion program. This surely implies that consumers are in fact motivated by price with commensurate quality. Wellness and safety are non-quantifiable assumed attributes and many of the claims made by Whole Foods and its clones are without substance. 

Whole Foods Market purports to offer healthfulness, transparency, and presumed contact with the farm of origin albeit at a higher price than competitors. This reality appears discordant with the conclusions of the survey. Whole Foods Market, recently acquired by Amazon, has posted successive declining quarterly same-store sales and net earnings.  The divergence between the deep discounter Aldi and high-price Whole Foods raises questions concerning the reliability of the survey data and its interpretation.

   
 

AI Strain H7N9 Has Pandemic Potential

Jun 21, 2017

    

A recent study has concluded that if three point mutations occurred simultaneously in the avian influenza strain H7N9 now circulating in China and responsible for morality among consumers, the strain could emerge as the next pandemic. Studies conducted at the Scripps Research Institute demonstrated that changes in the H7 hemagglutinin could create an affinity for human cells. Although individual point mutations can occur, the probability of three simultaneous changes in the genome are unlikely.

  

To date, the infection has resulted in 779 cases in China over two years with a fatality rate of approximately 40 percent. The H7N9 virus does not however spread from person to person. Infections are acquired by close contact with infected poultry, mainly through the wet market system.

Scientists involved in influenza epidemiology have recommended continued surveillance. A recent mutation resulted in the H7N9 virus demonstrating pathogenicity for chickens. Since the problem is essentially confined to China and their wet markets system, the Nation has an obligation to humanity to control and hopefully eradicate infection. There is an indication that an inactivated homologous vaccine will soon be deployed.

 In the first instance, authorities in China owe their own population a reasonable degree of protection which can only be obtained by displacing the wet market system of distribution which is an anachronism in the context of the 21st Century.

   
 

Concern Over Reliability of River Transport

Jun 14, 2017

    

The Waterways Council Inc., a trade group representing shippers using U.S. waterways, has estimated that maintenance and repairs to locks and other improvements may require an expenditure of almost $9 billion.

Exports of corn and soybeans are reliant in large measure on effective operation of waterways. Fifty year-old locks are deteriorating. The vulnerability of the waterways system was demonstrated during the 2012 drought when reduced water levels impeded traffic and required emergency action by the U.S. Army Corps of Engineers.

Even if money were allocated to repair  locks, inevitable delays estimated to be from 30 to 90 days may occur, reducing exports. Obviously some work could be scheduled to coincide with periods of lower traffic, but direct and consequential costs would be incurred. 

  

If exports are impeded, the price of commodities in the heartland would decline sharply with some estimates as high as 15 percent from current prices which are barely above the cost of production. If the cost of upgrading locks and waterways is added to the price of commodities, the U.S. would be less competitive on world markets. Delays or interruption in exports would reflect adversely on the “reliability” of the U.S. supply system, driving customers to alternative suppliers including the Ukraine, Brazil, Argentina and other nations which are contributing to the glut of commodities.

If disruption in exports occurs, prices would drop at the elevator level favoring egg and turkey producers in the Midwest. Broiler producers in the southeast, heavily dependent on barge transport, would incur additional cost for rail shipment of ingredients.

   
 

Depletion of Aquifers

Jun 7, 2017

    

In recent weeks, speakers at national and regional meetings have discussed the challenge of feeding a World population projected to grow to 9.7 billion by 2050. 

Advances in molecular genetics have improved yields of corn and soybeans but the rate of improvement may not attain the 1.5 percent compounded annual increase required across all food production.

A recent article in Nature sounded a warning on the rate of depletion of aquifers.

  

The study conducted by scientists at the UK Institute for Sustainable Resources in cooperation with the U.S. Goddard Institute for Space Studies – National Aeronautical and Space Administration, applied remote imaging to determine the rate of groundwater depletion in aquifers. The values derived represent the differences between pumping for irrigation and replenishment by rainfall.

Groundwater depletion has escalated 24 percent in ten years from 19.5 cubic kilometers to 25.1 cubic kilometers per year.  (Each cubic kilometer is equivalent to 26.4 billion gallons).  Most of the increase in groundwater depletion has occurred in India, Iran, Pakistan and China.  The crops most responsible for groundwater depletion are wheat (22%), rice (17%), sugar (7%), cotton (7%) and corn (5%).  Groundwater depletion is apparently concentrated in areas that rely on aquifers including the USA, Mexico, the Middle East, North Africa, India and China.

 It is noted that four decades ago Saudi Arabia adopted a policy of self-sufficiency with regard to wheat.  The resulting installation of thousands of center-pivot irrigation systems drained aquifers to a dangerously low level.  The dairy industry in the Central Valley of California is also impacted by periodic shortages of water requiring installation of progressively deeper wells.

It is axiomatic that most regional conflict has less to do with land than water.  It would appear that availability of groundwater will be the major restraint to feeding a burgeoning population.

The report recommended early intervention by improving irrigation, substitution of existing crops for drought-resistant cultivars and restricting abstraction from aquifers.  In many respects recognition of a problem and developing alternative solutions is common to both groundwater depletion and global warming.

   
 

Lisa Bodell Questions Complexity at Alltech ONE17 Conference

May 31, 2017

    

Lisa Bodell, founder and CEO of Futurethink and author of “Why Simple Wins: Escape the Complexity Trap and Get to the Work That Matters” presented a stirring and thought-provoking observation of how we run our businesses. Addressing a filled Rupp Auditorium in Lexington, KY. In the Plenary Session of the Alltech ONE17 Conference, Bodell posed the question “What do you spend your day doing?” She noted that the average manager spends only 14 percent in real creative work.

    

Remaining activities include 45 percent of time at meetings, 23 percent on E-mail and 18 percent on totally unproductive work. She considers that complexity and structure are destroying the creativity of organizations. It is evident that the fast-growing disruptors with strong entrepreneurial management offer high returns on capital and assets. These companies work more informally and reward creativity. In some cases they function without any formal organizational structure.

Bodell points to what she refers to as the “complexity trap” present in many highly-structured companies. Managers spend time on formal reporting and are engaged in doing rather than thinking. The antidote to managerial or creative sclerosis requires:

  • Killing “stupid” (non-constructive) rules
  • Streamlining decision making, avoiding the delays associated with consensus and restraints inherent to company culture
  • Each manager should become a Chief Simplification Officer for their function which involves reducing needless communication. This may be a simple insertion of “no need to respond” (NNTR) in the subject line of widely circulated E-mails. Creativity can be enhanced by delegating to decision makers and empowering them to act and reducing the length and frequency of meetings.

Bodell considers that “simple always wins.” Her concepts have been implemented at Fortune 500 companies including Google Cisco Systems, Fidelity, Accenture and the U.S. Navy.

She serves as a member of the Global Agenda Council for the World Economic Forum and participates on the Boards of the Association of Professional Futurists and the Novartis Diversity and Inclusion Board for the Swiss company.

   
 

JBS Executives Enter Plea Bargain

May 26, 2017

    

In the unfolding drama in Brazil which extends to the level of President Temer, the Chairman of JBS-SA., Joesley Batista and CEO Wesley Batista have entered plea bargains and provided testimony relating to bribery allegations.

According to the Saturday May 20th edition of the Wall Street Journal a political crisis has now reached an explosive level after simmering over a span of 15 years.  The Batistas admitted to bribing politicians with in excess of $400 million over a number of years to arrange sweetheart financing from the state development bank, BNDES. 

 

Joesley Batista admitted to depositing $30 million in an offshore bank account for Ms. Rousseff the impeached President and paying $2.5 million to Mr. Temer.  Approximately $50 million was paid into an offshore account held by Mr. Lulu DaSilva who preceded Ms. Rouseff as a socialist President. 

O Globo, an influential newspaper noted, “The President has lost the moral, ethical, political and administrative conditions to continue governing and called for his resignation.  Termer is on tape as having urged Batista to pay off a jailed Congressman, former Lower House leader Eduardo Cunha to obtain his silence.  It is noted that Michel Temer held a popularity rating of under 9 percent prior to the latest allegations.

JBS is the world largest protein producer with investments in Australia, Latin America, the E.U. In the U.S. it is the controlling shareholder of Pilgrim’s Pride the second largest broiler producer and also has acquired extensive pork production.

The current crisis has implications for the “financial flexibility and access to credit” for the company which may well be facing a breakup.

In an apology to the Nation of Brazil, Batista provided an unconvincing and self-exculpatory justification, “Up against a Brazilian system that often creates difficulties just to sell solutions, our entrepreneurial spirit and immense desire to get things done lead us to offer payments to public servants.”  He added, “In other countries outside of Brazil we were capable of expanding our business without breaking ethical values.”

The Brazilian financial scandal referred to in the popular press as the “Carwash Corruption” has now assumed massive if not operatic proportions.

   
 

Boston Market Promoting a Spurious “Quality Guarantee”

May 24, 2017

    

Boston Market has announced an extension of their “quality guarantee” which on close reading includes non-existent attributes. These comprise:-

  • The company claim that by 2024 all chicken served in its restaurants will be “U.S.-farm raised.” It is doubtful whether even now and certainly by 2024 Boston Market could purchase at a competitive price any chicken derived from any source other than a domestic supplier
  • Boston Market intends that chicken will be raised without added hormones or steroids. It is a matter of fact that neither steroids nor hormones have been used to produce any chicken in the U.S. since the late 1940’s
  • Boston Market claims that chickens are gluten-free. Since gluten is a protein associated with wheat, the only way in which gluten could be incorporated in a menu item would be from breading. This has nothing to do with the growing and raising of broilers which do not contain gluten.
  • Boston Market claims that their product will be MSG-free. This again is a question of preparation and has nothing to do with the raising or processing of chicken.
  • On the subject of sourcing chicken, the company claims “100 percent antibiotic-free.” Does this mean that all chicken will be raised according to a USDA certified “No Antibiotics Ever” program or simply statutory compliance with FDA Guidance Documents incorporating the VFD which is followed by the entire Industry. Does “antibiotic-free” refer to possible antibiotic residues, since these are in fact non-detectable in U.S. chicken.
 

Boston Market has committed to Global Animal Partnership standards which will raise their cost of raw material without offering any specific benefit other than “bragging rights.” It is noted that Ms. Hunt, the Engagement Specialist at the Humane Society of the United States, stated “we welcome Boston Market’s commitment.” Global Animal partnership is closely affiliated with the Humane Society of the United States through joint directorships and it is even possible that indirectly GAP certification adds to the coffers of the organization.

It is enigmatic that the HSUS which is committed to a vegan agenda would even indirectly endorse any company preparing and serving animal products. It would appear that HSUS through its affiliations is establishing certification programs which continually ratchet up standards and impose requirements which are ever more difficult to meet and most certainly disfavor intensive production. HSUS cannot have it both ways. Either they are opposed to consumption of meat on moral grounds or they are not. If the former why be associated with certifying agencies and endorse standards which are difficult and expensive to meet?

   
 

FDA Rule on Caloric Content

May 10, 2017

    

The FDA has issued proposed rules mandating display of calorie levels of menu items in an attempt to reverse the trend in the rate of obesity. Among the multitude of companies required to comply will be pizza stores offering a comprehensive range of toppings all of which alter caloric content. 

 

The irony of the regulation is that in the case of pizzas virtually all orders are either telephoned in or placed on-line so consumers never see a menu board.  Most companies have however indicated calorie content in on-line postings bur whether this influences ordering is speculative. The rule also extends to supermarkets that serve prepared sandwiches.

Bills are under review in the House and Senate ameliorating the impact of the FDA Rule.  It is also possible that the Administration may direct the FDA to delay implementation until legislation is enacted.  The Food Marketing Institute has calculated that compliance with the Calorie Disclosure Rule would cost in excess of $1 billion, ultimately borne by both consumers and restaurants.  The proposed Rule has been in the making for over five years and extends to over 100 pages including the requirement that caloric content for pizza must be declared by slice.

 There is little scientific evidence that posting calorie content influences food choice.  The Rule is yet another example of well-intentioned but onerous intrusion by the Government into business and lifestyle.  It is acknowledged that the U.S. has a problem of obesity in common with most industrialized countries.  Issuing 100 page rules on how caloric content should be displayed on menus and boards is not the solution. 

The time and effort devoted by the FDA to developing a inappropriate solution to a distinct problem stands in contrast to the fact that the Agency inspects less than two percent of imported foods and imposes only cursory control over Asian plants manufacturing pharmaceuticals. It is hoped that the nominee for Commissioner of the FDA when confirmed will introduce a level of rationality apparently lacking in the Agency.

   
 

Agricultural Community Concerned Over NAFTA

May 10, 2017

    

An article in the April 3rd edition of the New York Times by Kirk Semple highlighted the concern expressed by grain farmers over possible changes to NAFTA.

In 2016, the U.S. exported 13.8 million tons of corn to Mexico valued at $2.6 billion representing a unit price of $5.27 per bushel, far in excess of the CME domestic price.

  

Total agricultural exports to Mexico now exceed $18 billion annually including grains, dairy, poultry, beef and hogs. Tom Sleight, president and CEO of the U.S. Grains Consult noted “Soup to nuts:  corn, dairy, meat, specialty products, fruit – they are all pretty much gathered together.”  He added “the U.S. Grains Council and producers are seeking to remind the Administration of the importance of trade and specifically Mexico to Agriculture’s bottom line.” His concern was reinforced by the statement of Barbara Patterson, Government Relations Director for the National Farmers Union who opined “shutting off our borders or losing access to trading partners has farmers concerned.”

The NYT article quoted Todd Hultman a grains analyst at DTN as stating “It’s really hard to track with this President, the campaign rhetoric has really been over the top. But what actions are really going to come from the White House is still a mystery.”

The agricultural community still hopes that Businessman Trump rather than Idealist Trump will emerge as the predominant factor in renegotiating NAFTA. The farming community would endorse an approach to modify the Agreement, to produce a mutually acceptable update.

There is also concern in Mexico relating to sourcing grains. This has resulted in evaluation of alternative suppliers including Brazil and Argentina although this could prove even more expensive than sourcing form the U. S. An alternative approach would be to increase domestic production although this would require a profound change in land tenure an almost impossible objective. Domestic livestock production has been impacted by the cost of U.S. grain which is subject to an import duty benefitting the Government of Mexico to the detriment of consumers.

   
 

Claim to Reduce Wooden Breast Syndrome by Additive

May 3, 2017

    

Reports are circulating on industry websites purporting to offer a nutritional solution for wooden breast syndrome. This emerging condition is frequently encountered in high-yield broilers. 

According to an article in an E.U. publication, a feed additive emanating from a manufacturer in Belgium has been subjected to successful field trials in Brazil. 

It would be justified to report on the claimed positive results of a feed additive experiment if it were based on an article in a peer-reviewed journal conducted with appropriate controls and carried out according to scientific principles.

  

Pathogenesis of wooden breast and the associated ‘white striping’ defect has only recently been described. The specific etiologic factors are unknown but may relate to early development of vascularization of the pectoral muscles in high-yield strains, suggesting an interaction among genetics, nutrition and management.

Previous studies on increasing vitamin E, antioxidants, sulfur-containing amino acids and other nutrients including organic minerals have resulted in amelioration under controlled laboratory studies. In contrast the results of field trials are subject to the limitations of farm-selection, flock bias, confounding and a lack of replication necessary for statistical analysis.

Whenever an industry-wide problem emerges, there is always a ready supply of “quick-fixes”.  Complicated and multifactorial issues do not have simple solutions. It is incumbent on technical writers to question claims and to elucidate the mechanism of action and relate the presumed action of components in a non-defined feed additive to known biological principles.

   
 

Chipotle Claims Elimination of Preservatives

Apr 26, 2017

    

Chipotle Mexican Grill announced on March 28th that it has eliminated colors, flavors and preservatives in all ingredients used to prepare food.  Eliminating FDA-approved preservatives does not actually make food “better”. 

The range of additives in baking and preservatives in protein ingredients serve a useful purpose in maintaining flavor or freedom from pathogens.  There is no specific virtue in pursuing a “freedom-from” claim.

Steve Ells persist with the canard that non-GMO ingredients or poultry and beef produced in accordance with FDA and FSIS regulations are in some way inferior to USDA certified organic products.

  

Steve Ells

Mark Crumpacker, recently reappointed to his position of Chief Marketing and Development Officer for Chipotle stated, “Fast Food Companies should be asking why their food needs added flavors, sweeteners and preservatives in the first place.”  In many cases the answer involves food safety but also preservation of quality and taste.

The statement by Steve Ells published in the Denver Business Wire on March 28th is replete with the usual Chipotle superlatives and claims of preeminence.  By reading between the lines it is possible to discern “exceptions” including beverages and citrus juices.

CHICK-CITE takes issue with the tone of Chipotle announcements and the comments by Ells which denigrate the products served by his competitors without the equivalent menu items from Chipotle possessing superior attributes with respect to either health or quality.  Chipotle in its publicity has invariably included a measure of sophistry and smugness.  Basic defects in conceptual planning, food science and safety led to the consecutive outbreaks of foodborne infection involving at least four pathogens nationwide in 2015 without any assurance that outbreaks could reoccur.

   
 

KFC Commits to Eliminate Common-Use Antibiotics

Apr 19, 2017

    

In an April 7th release, Kentucky Fried chicken announced that by the end of 2018, all chicken purchased by KFC U.S. will be raised without antibiotics important to human medicine (“common- use” antibiotics.)

KFC and its parent Yum! Brands is the last of the major chains to announce a ban which in effect follows FDA policy and mandatory compliance by the broiler industry.

 

Lena Brook, food policy advocate at the Natural Resources Defense Council, stated “The market is responding to consumer demand for better meat. This commitment from the nation’s most iconic fast food chicken chain will have a major impact on the way that birds are raised in the U.S. and in the fight against the growing epidemic of drug-resistant infections.”

For information, the decision will not have any “major impact on how birds are raised” since many broiler producers anticipated the 2017 FDA deadline and followed previously released Guidance documents. Common-use antibiotics are essentially disallowed for other than very specific therapeutic administration under strict veterinary control.

The quantitative impact of antibiotic use in broiler production on the emergence of drug-resistant organisms is questionable notwithstanding emerging knowledge based on advanced molecular analysis and epidemiologic evidence.

The majority of drug resistance in human populations results from inappropriate and over-administration of drugs by the medical profession. However, perception is reality and the industry has in large measure accepted the principle of relinquishing antibiotics for growth promotion and disease prevention on a routine basis in conformity with FDA rules.

Kevin Hochman president and Chief Concept Officer for KFC U.S. stated “Making this change was complex and took a lot of planning. It required close collaboration with more than 2,000 farmers, most of them family-owned and managed in more than a dozen U.S. states where they raise our chickens” This is at best a non-factual statement.  

KFC does not deal with farmers but purchases chicken products from a limited number of integrators who in turn agree to and conform to mutually agreed programs, since they own the flocks placed on contractors’ farms. These flocks receive Company feed and supervision and are harvested and processed to supply KFC and other QSRs.

It is evident that going forward the USDA will play a role in antibiotic-free broiler-raising programs through Process Verified Certification.

   
 

Yum! Brands CEO Forecasts Robotics and Automation in QSRs

Apr 19, 2017

    

Yum! Brands CEO, Greg Creed forecast that by the mid 2020’s, automation and robotics will be commonplace in QSRs.  He noted that affiliated brands, Pizza Hut, KFC and Taco Bell have established automated ordering kiosks in Shanghai, China and are even using robotic greeters.  Creed compared advances in automation in QSRs to the extensive use of robots in manufacturing.

  

His comments to CNBC follow recent initiatives to raise the rates paid to workers to a minimum of $15 per hour for unskilled work.  In view of the thin margins generated by QSRs, substantial increases in labor costs will force both in-store automation in addition to centralized food preparation in commissaries, trends which are already apparent. The alternative, as in Seattle WA. is the closure of stores.

The U.S. fast food industry was founded on manual labor provided by high-schoolers following a right-of-passage, learning responsibility, punctuality, and interaction with customers and supervisors before going on to college or a career.  Over the past three decades, especially in urban areas, QSR workers have represented an unskilled work force virtually tied into minimum wage occupations.

Chick-fil-A® is the outstanding exception with respect to remuneration, training, motivation and benefits. Since the chain is a private company with a unique philosophy and business model decisions were made by the founder, S. Truett Cathy and followed by his son Dan to invest in store associates. This luxury apparently eludes public-quoted companies in intense competition, which are required to demonstrate growth in earnings on a quarterly basis to maintain EPS and to pay dividends often at the expense of employees.

   
 

Reevaluation of Acceptance of GM in China

Apr 12, 2017

    

The China National Chemical Corporation, a parastatal entity, has completed their $43 billion acquisition of Syngenta AG of Switzerland.  Syngenta is a leading biotechnology company developing and distributing GM seeds.  Partly through ignorance but also institutional opposition, Chinese consumers are generally unwilling to embrace GM technology.  The justification for previous Government policy on GM lies in the low productivity of farms. 

  

Currently farmers in China can harvest 95 bushels of corn per acre equivalent to 6 metric tons per Ha.  The U.S. equivalent is 180 bushels per acre. Similar differences exist between the yield of soybeans in China (25 bushels per acre or 1,600 kg per Ha) compared to 52 bushels per acre in the U.S.

Simply put, if the yield of corn and soybeans were to be increased to levels approaching U.S. standards, the price of commodities would fall to the point where millions of small-scale farmers would be displaced resulting in social upheaval.  Accordingly the Government of China which plans all production has maintained a program of excluding GM seeds but cynically allows importation of GM grains for livestock and human consumption.

China National Chemical Corporation will have to integrate the technology of its acquisition into the agriculture of its nation as it will have to compete in the future with powerful competitors such as the combination of DuPont Company and Monsanto.  The national market for seeds in China is estimated at $17 billion according to an article by Brian Spegele in the March 27th edition of the Wall Street Journal.  Pressure to capitalize on their investment will force China to adopt GM grains.  A thaw in attitude was cited in the WSJ article with Zhang Taolin the Vice-Minister for Agriculture stating, “The Government believes GM is safe”.  Syngenta maintains that the Government of China which has funded GM research will adopt the technology for the domestic market in an attempt to upgrade productivity.

It is anticipated that the change in consumer attitude may take some time with Jian Wu, business director at DuPont of China criticizing the Government for “not educating the general public about the real benefits of GMO”.  Of specific interest in China is cultivation of GM soybeans to produce cooking oil which is in demand.

It would appear that China is in a position to learn from the mistakes of the European and U.S. biotechnology companies that identified farmers as their customers for GM seeds. In fact consumers at the end of the production chain represented the arbiters of acceptability.

   
 

Head-Only Stunner Developed in the Netherlands

Apr 12, 2017

    

Dutch Vision Solutions (DVS) has developed a head-only broiler stunner recently promoted in the form of an “infomercial” in an EU poultry periodical.  The purpose of the development program was to engineer a system which would allow recovery of stunned broilers within 30 seconds, apparently a requirement for some certifiers of halal slaughter and important for some export markets. 

The equipment developed by DVS was tested by a Wageningen University research team at a throughput of 13,500 birds per hour.  Stunning efficiency attained 95 percent with approximately 5 percent birds of birds showing a sensate reaction within 30 seconds after stunning.

  

A comparison shows that the capital cost of a head-only installation is approximately eight times the cost of a water-bath unit and according to the figures presented, enigmatically even more that a controlled atmosphere stunning installation.

The head-only stunner does not appear to have advantages over pulsed-DC stunning as installed in some plants in the U.S. or over the more conventional water-bath AC stunners.

Given the growing demand for controlled-atmosphere stunning as a welfare imperative, it is doubtful whether the system will be adopted in the U.S.  In any event, the head-only system still requires manual shackling which is considered a negative by advocates of bird welfare and the customers they advise. It is considered unacceptable that the head-only stunning system as tested, would allow five percent of broilers to pass conscious through the rotary blade or manual slaughterer.

The cost comparison presented in the form of a table in the article published in the EU periodical clearly overstates the cost of controlled atmosphere stunning especially with respect to labor, water usage and electricity. The comparison ignored fixed costs including depreciation and interest.

   






















 
Copyright 2017 Simon M. Shane