Beefing Up Returns: Study Finds Companies Offering Less Industrial Meat Perform Better

Global Insights, Innovation

Beefing Up Returns: Study Finds Companies Offering Less Industrial Meat Perform Better

14 Sep , 2016  

The below blog appeared originally at EcoCentric, a leading channel for sustainable food practices. Over the last few years, students in the Kellogg Analytical Consulting Lab, a popular lab class that I founded and teach, have undertaken novel research on the economic drivers and performance of the food industry. It is wonderful to see our MBA team of Jackie Laine, Shirely Xue, Iris Tan, and Ana Ananthakumar making such an impact!

Editor’s Note: Arlin Wasserman is the founder of Changing Tastes, a consulting firm that helps the food industry, trade and nonprofit organizations, and investors find and realize opportunities at the intersection of public health, sustainability and the changing nature what we eat. His firm has partnered with the Analytical Consulting Lab at the Kellogg School of Management at Northwestern University to conduct a multi-year study into protein and risk management in the food industry.

Wall Street investors have been writing some pretty harsh restaurant reviews lately, driving down the value of companies like McDonald’s and Chipotle by billions of dollars in just a few days, or showing how finicky they are by doubling value of Shake Shack just a few weeks after it went public – and then cutting the company’s worth down by more than half just a few months later.

Restaurant companies, no strangers to changing up the menu, have to keep offering up something different to investors, even if there aren’t many new ideas. Stock analysts are wondering if breakfast sandwiches in the afternoon at McDonald’s, Burger Pizza at Domino’s and hot dogs at Burger King will do the trick.

But as Wendy’s and other big food companies try to stem their stock slides and fuel their businesses by again asking “Where’s the Beef?,” a study by Changing Tastes and a team of researchers working at the Analytical Consulting Lab (ACL) of the Kellogg School of Management at Northwestern University finds the answer is: not at better performing companies.

Does the Quality and Quantity of Meat Offered Affect Profits?

The Changing Tastes and ACL study, What Drives Meatier Returns?  (March 2016 ) finds that restaurant companies that choose to reduce the amount of industrially produced meat on their menus provide better returns to investors than their competitors do over a five-year period. And companies that reduce the total amount of meat they offer customers do the best.

Those that offer higher quality meat, such as antibiotic-free, grass-fed and natural beef, also do a bit better than others over the same time period. But over a shorter, one-year period, the switch to better beef didn’t drive better returns as new menus, supplier arrangements and costs all impacted revenue, profits and returns.

Authors Ana Ananthakumar, Jackie Laine, Iris Tian and Shirley Xue, along with Russell Walker, PhD and Arlin Wasserman, examined the historical shareholder returns and changes in menus for more than thirty publicly traded restaurant companies that own well-known casual and fast food brands, including publicly traded companies on the Quick Service Restaurants Top 50 list and those included in the NASDAQ’s BITE Index. Smaller companies with less than 63 restaurants were excluded.

Eaters’ Tastes Driving Change

The study found that for every one percent increase in industrial meat offered to diners, shareholder returns declined by 1.4 percent. Changing tastes among the dining public are one of the reasons why. Some additional takeaways:

  • Consumers are switching from red meat to other types of protein. Red meat consumption is declining at a substantial rate. Between 2000 and 2025, red meat will decline by 25 percent, according to Changing Tastes’ analysis of data from the USDA’s Economic Research Service. Meanwhile, 10 percent of diners are now interested in finding meals that offer plant-based options and 17 percent of Millennials have recently chosen a vegetarian or vegan meal in a restaurant, according to Diners’ Changing Behaviors (Hartman Group/Changing Tastes, 2015).Health concerns about red meat also are driving diners of all ages towards white meat, with chicken recently replacing beef as the nation’s most popular protein.
  • When consumers want meat, like a burger, they’re trading up to higher quality meat. Across all types of casual and quick service restaurants, a commitment to higher quality meat is becoming an increasingly important profit driver among established brands like Subway and Chick-fil-A, which have both pledged to reduce antibiotics in the livestock they use. Higher quality meat and more vegetarian options are also driving sales at newer restaurants like Shake Shack.
  • Higher quality meat commands higher prices . Meat that is grass-fed or produced without antibiotics has a halo of better health and offsets the “guilt” of eating higher calorie meals, contributing to sales even when prices are higher than other menu items.

The Risk of Industrially Produced Meat

According to Russell Walker, Clinical Professor at the Kellogg School of Management, “Managing risk is a core competency among well-run companies in any industry. This means diversifying products and offers, pricing in health and environmental concerns, and adapting to changes in the marketplace. The team found that companies that did this fared better. Selling hamburgers didn’t change the fundamentals of business.”

Relying on industrially produced meat also increases a host of financial and supplier risks for restaurant companies, according to a series of research studies by other teams at the Analytical Consulting Lab. Water scarcity, climate change and a number of other changes in the marketplace all make it harder for companies that rely on industrial meat to control costs and manage risk.

About the Analytical Consulting Lab

The Analytical Consulting Lab at the Kellogg School of Management at Northwestern University works with actual company data, developing meaningful analytical models for managerial decision-making, and presenting results and recommendations to company executives. Projects focus on developing economic models for decision-making, developing analytical processes, and using big data and analytics for improved enterprise decisions. 

About Changing Tastes

Changing Tastes helps food businesses, trade and non-profit organizations, and investors achieve greater success by using our data-driven approach to understanding and finding opportunities at the intersection of five key trends that are driving change in our food system: sustainability, public health, information technology, demographics, and the changing role of the culinary professional and foodservice industry.

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By  -      
Russell Walker helps companies develop strategies to manage Risk and harness value through Analytics and Big Data. As Clinical Professor at the Kellogg School of Management of Northwestern University, Russell Walker has developed and taught leading executive programs on Big Data and Analytics, Strategic Data-Driven Marketing, Enterprise Risk, Operational Risk, and Global Leadership. He founded and teaches the popular Analytical Consulting Lab and Risk Lab, experiential classes, which bring Kellogg MBAs together with real-world projects in Analytics and risk evaluation. His is the author of the book From Big Data to Big Profits: Success with Data and Analytics (Oxford University Press, 2015) which examines data monetization strategies and the development of data-centric business models in the new digital economy. He is also the author of the award-winning text Winning with Risk Management (World Scientific Publishing, 2013), which examines the principles and practice of risk management as a competitive advantage. Dr. Walker consults with firms on the topics of Big Data and Analytics, Risk Management, and International Business Strategy. Russell Walker can be reached at: russell-walker@kellogg.northwestern.edu @RussWalker1492 russellwalkerphd.com



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