On Sept. 9, the fast-food giant announced the McDonald’s USA division would begin using real butter, instead of liquid margarine, on breakfast items: English muffins, biscuits and bagels. Furthermore, the company also introduced the new buttermilk crispy chicken with real buttermilk in the breading.
Additionally, on Oct. 6, McDonald’s began serving a 24-hour limited breakfast menu, further utilizing the strong dairy presence of milk, cheese and now butter in breakfast menu items.
This is good news for the dairy industry, says Tom Gallagher, CEO of Dairy Management Inc. (DMI), the managing institution of the dairy checkoff.
Gallagher explains the company’s switch to butter as a three-part story that began two and half decades ago.
Part one
Thanks to the dairy checkoff, Gallagher says for 20-plus years, dairy farmers have invested in milk fat research that proves dairy fat and fat in general are different and have different effects in the body.
Today, Dr. Jeff Zachwieja, senior vice president of nutrition research and affairs for the National Dairy Council, agrees with that research and says it has started to prove itself.
“The consumption of dairy products, particularly dairy products that are whole milk and the variety, are neutral and sometimes beneficial for preventing things like cardiovascular disease and Type 2 diabetes,” states Zachwieja.
“From a calorie standpoint, they are beneficial because they help people consume the calories that they need. There’s little to no relationship between dairy fat consumption and chronic disease,” he concludes.
Part two
In 2009, Gallagher says DMI experienced a paradigm shift. The organization backed off of its national advertising campaign and instead invested in half a dozen partnerships with companies like McDonald’s, Domino’s, Taco Bell and Pizza Hut.
“We put on-site product development people who are there working with the McDonald’s chef. That has worked so well that we’ve added a registered dietician who helps them in their nutrition consulting or nutrition evaluations of their products. We have a part-time sustainability person to help on sustainability in dairy and agriculture,” explains Gallagher.
“We did that at about the time [McDonald’s was] going to introduce McCafé, and we wanted McCafé to be dairy-centric, not some alternative-beverage-centric,” he says.
Now, it’s all dairy.
“It’s really milk with some coffee flavoring,” he says of the coffee line. “They’ve sold over 600 million pounds of milk a year through McCafé.
“If you eat a dairy product or product that has dairy in it at McDonald’s, our [checkoff] scientists created that product. That’s been a relationship that’s given the farmers and the industry an enormous amount of incremental sales.”
Part three
Enter consumer trends. Leveraging the now strong, reliable partnership with McDonald’s, DMI was able to use the mounting dairy fat research and growing consumer preference toward natural and real products to introduce the company to the “real butter” idea.
“One of our people wrote the specs for the butter, did all the testing to see how it would melt, how it could be used, went out and trained all the owner operators and sold it into top management. Our person, not a McDonald’s person, did all that,” Gallagher says.
The highlight for Gallagher is that McDonald’s is the trendsetter in the quick serve category. He foresees other fast food restaurants buttering up to the idea soon.
“When they went to McCafé, it was not long after that, that Burger King bought a coffee chain from Canada,” he says. “So it’s not just what McDonald’s does, it’s that everybody else has to follow, and that’s where you really get the big bang for your buck.”
That “bang for your buck” is what Gallagher is focusing on now.
“We know exactly what McDonald’s’ projections are. We’ve looked at their spreadsheets. We’ve also tried to compare that to what suppliers have been told,” Gallagher says.
So he feels he’s being conservative when he says he anticipates a 500 to 600 million pound range of milk equivalent coming from the McDonald’s butter switch. He says that number is equivalent to the amount of butter that was exported from the U.S. last year.
“That’s a great number,” he states. But he expects that number to grow quickly too.
“That number is going to grow much bigger for two reasons,” he says. “The catalytic effect in other chains that are going to want to now tie into this story of natural and real. The second reason is consumers are going to see more and more advertising from all these folks who are trying to sell these products as natural. Consumers are going to start getting permission from these ads and their health professionals to have more dairy or whole fat dairy.”
President Barbara O’Brian of the Innovation Center for U.S. Dairy says the butter rollout began in October and will continue through the fourth quarter. She says the butter switch is planned for 14,000 stores and covers more than 20 national menu items.
Now what does the big butter announcement mean for butter prices?
Mike McCully, owner of The McCully Group LLC, says the announcement helped fuel a short-term spike to new record highs.
Globally, however, the announcement has had minimal to no impact on prices since U.S. butter prices are well above world market prices. In fact, domestic butter prices have actually dropped slightly since the announcement.
McCully cites the butter price on Sept. 28 at $3.05. It then dropped to $2.35 on Oct. 6 – a $.70 drop in only seven trading days.
“However, the U.S. market was already seasonally strong, so the announcement of new demand provided additional upward momentum,” McCully says. “Once the holiday demand period passes by early-to-mid November, butter prices will drop back below $2.
“Going forward, this new demand shifts the butter demand curve upward, resulting in sustained higher prices in the future,” he says.
In 2016, McCully predicts that imports will play a factor in adding to U.S. fat supplies, but not necessarily in the form of butter.
“Imports will fill some of the demand from food processing uses like confectionary and bakery, but AA print butter demand will still be filled by U.S. butter,” he says. PD
Paige S. Nelson resides in Rigby, Idaho, and is an agricultural freelance writer.
