You Want Any Fruit With That Big Mac?

* By MELANIE WARNER * Published: February 20, 2005 EACH day, 50,000 shiny, fire-engine-red Gala apples work their way through a sprawling factory in Swedesboro, N.J. Inside, 26 machines wash them, core them, peel them, seed them, slice them and chill them. At the end of the line, they are dunked in a solution of calcium ascorbate and then deposited into little green bags featuring a jogging Ronald McDonald. From there, the bags make their way in refrigerated trucks refrigerated containers in cavernous distribution centers, thousands of McDonald's restaurants up and down the Eastern Seaboard. No more than leaving the plant, the fruit will take the place of French child's Happy Meal. to and then to 14 days after fries in some

The apple slices, called Apple Dippers, are a symbol of how McDonald's is trying to offer healthier food to its customers - and to answer the many critics who contend that most of its menu is of poor nutritional quality. McDonald's has also introduced "premium" salads, in Caesar, California Cobb and Bacon Ranch varieties, a lineup that will soon be joined by a salad of grapes, walnuts - and, of course, apples. It remains to be seen whether these new offerings will assuage the concerns of public health officials and other critics of McDonald's highly processed fat- and calorie-laden sandwiches, drinks and fries. So far, they have not - at least not entirely. But this much is already clear: Just as its staple burger-and-fries meals have made McDonald's the largest single buyer of beef and potatoes in the country, its new focus on fresh fruits and vegetables is making the company a major player in the $80 billion American produce industry. The potential impact goes beyond dollars and cents. Some people believe that McDonald's could influence not only the volume, variety and prices of fruit and produce in the nation but also how they are grown. The company now buys more fresh apples than any other restaurant or food service operation, by far. This year, it expects to buy 54 million pounds of fresh apples - about 135 million individual pieces of fruit. That is up from zero apples just two years ago. (This does not include fruit used to make juice and pies, which use a different quality of apple.) And it is not just apples: McDonald's is also among the top five food-service buyers of grape tomatoes and spring mix lettuce - a combination of greens like arugula, radicchio and frise. The boom has been so big and so fast that growers of other produce, like carrots and oranges, are scrambling for a piece of the action. OF course, other fast-food chains have similar salads and fruit choices on their menus, but they have not had a comparable influence on the market because of their smaller size. Burger King, for example, has 7,600 restaurants in the United States, while Wendy's has 5,900 and Arby's has 3,300. McDonald's has 13,700. While salads have been offered at McDonald's in some form or another since the late 1980's, this is the first time they have been big sellers. And Apple Dippers are the first fruit the chain has sold that did not reside between two layers of pie crust.

Missa Bay, the company that runs the Swedesboro plant - one of six McDonald's apple slicing facilities around the country - could not be happier about that. "McDonald's is really pioneering the concept of ready-to-eat sliced apples," said Sal Tedesco, the chief operating officer of Missa Bay, which built the new production line specifically to process apple slices for McDonald's. In a few months, Missa Bay, owned by Ready Pac Produce of Irwindale, Calif., will also be supplying roughly one-quarter of the 13,700 restaurants with sliced green apples for the new fruit salad, which is scheduled to be introduced in May. Mr. Tedesco said that these two items would increase Missa Bay's revenue by at least 10 percent this year. With those kinds of numbers comes power. Just as the enormous size of McDonald's once helped the company turn the nation's beef, chicken and potato industries into highly mechanized, consistent, efficient and low-cost businesses, McDonald's is using its purchasing decisions to build a reliable supply of fresh fruits and vegetables that meet its exacting specifications. At the U.S. Apple Association's annual marketing conference in Chicago last summer, Mitch Smith, the McDonald's director of quality systems in the United States, told a crowd of growers, many from the big apple-producing states of Washington and New York, that if they wanted to work with McDonald's, they should grow more Cameo and Pink Lady apples. Historically, growers have produced relatively few apples of these varieties, but McDonald's likes them for their crispness and flavor. Already, Cameo production in Washington State is up 58 percent in the current crop year from a year earlier, according to the Yakima Valley Growers-Shippers Association. Eventually, a bigger supply of certain varieties will drive prices down, which will be good for McDonald's. But right now, the company's huge presence in the market is keeping prices high. James R. Cranney Jr., vice president of the apple association, said that McDonald's was one of the reasons that apple prices had not declined this year, despite favorable growing conditions that produced an abundant crop. "When you've got such a big buyer like that it's going to keep the prices from falling," Mr. Cranney said. If the new power that McDonald's exerts over the produce industry ends up reducing prices and squeezing margins, he said, it would be a trade-off that many growers and processors seem willing to accept. "Apple consumption has been flat over the past 10 to 15 years," he said. "This is exactly what the apple industry needs because we think it's going to increase consumption." J. M. Procacci, chief operating officer of the Procacci Brothers Sales Corporation in Cedarville, N.J., said sales of grape tomatoes, climbing for the past five years, had received a particular boost from their inclusion in the McDonald's premium salads. Since early 2003, grape tomato sales in the United States have risen 25 percent; he attributes a significant part of the gain to McDonald's. For decades, of course, McDonald's has been buying produce like iceberg lettuce, tomatoes and onions for its hamburgers and other sandwiches.

But the premium salads - unlike their poor-selling predecessors, the Shaker salads that came in plastic cups - are an entree and have found a considerable following. Michael Donahue, the McDonald's vice president for communication and customer satisfaction, said the salads now on the company's menu were among the most successful introductions in the last 10 years. While the double cheeseburger is still the most beloved single item - 1.5 billion of them are ordered every year in the United States - Mr. Donahue said the company has sold more than 300 million of the premium salads since their introduction in March 2003. At $4 a salad, that translates to roughly $600 million a year, or 10 percent of domestic revenue for McDonald's last year. "The salads have definitely been a driver for McDonald's sales in the U.S.," said John Glass, an analyst at CIBC. Mr. Donahue conceded that the Shaker salads "did not resonate with customers" in part because customers did not like the idea of eating salad from a plastic cup. The company sold about 170 million of them in the 18 months they were on sale. At the McDonald's corporate headquarters in Oak Brook, Ill., the excitement over the new salads has as much to do with public opinion as rising sales. Five months before the salads were introduced, the company had to contend with a debate over what role it has played in the nation's expanding waistlines after two overweight, burger-loving New York teenagers filed a lawsuit accusing McDonald's of making them fat. A judge dismissed the case, but a federal appeals court last month overruled that decision, allowing the suit to proceed. Many had already come to see McDonald's as a symbol of everything that is wrong with the American food supply. "Salads have changed the way people think of our brand," said Wade Thoma, vice president for menu management in the United States. "It tells people that we are very serious about offering things people feel comfortable eating." Apple Dippers, which come with caramel dipping sauce and are offered either as part of a Happy Meal or sold separately for $1, do not have the same blockbuster status as the salads. But they have also given McDonald's customers some alternatives to burgers, chicken nuggets and fried potatoes. Mr. Thoma said the salads help explain why the company is serving one million more Americans now than it was a year ago. Many of these customers, he said, are mothers who feel better about giving their children Happy Meals if they come with fruit rather than fries. McDonald's executives say they hope to put even more fresh fruits and vegetables on the menu. "We're always thinking about this," said Mark Lepine, the director of food innovation and development. "We're looking at whether we can leverage the Apple Dipper concept for carrots." That is music to the ears of Grimmway Farms, the country's largest producer of carrots. "We think snack packs of baby carrots really make sense for the fast-food environment," said Lisa McNeese, vice president for food service sales. "Today we're growing sweeter varieties and improving flavor." The potential payoff from suddenly moving a product into 13,700 restaurants is so big that the orange industry is kicking itself for not

being better positioned for the fast-food market. Oranges are not sold at McDonald's or the other big chains, with the exception of canned mandarin oranges at Wendy's. "We've got to pool our resources and do a better job of processing oranges in an economical fashion," said Joel Nelsen, president of California Citrus Mutual, a trade association of citrus growers. Mr. Lepine says he gets frequent calls from fruit and vegetable growers, industry associations and processors wanting to enlighten him on the attributes of their products and to offer him taste tests. At times, he says, his desk is stacked with bags of lettuce and stalks of broccoli. BUT there are limits to what Mr. Lepine and his team can do. "There has to be a willingness on the part of the customer to buy these products," said Mr. Lepine, who has been working on menus at McDonald's for seven years. "We only sell things that people want to buy." For instance, McDonald's does not want to sell something that people may have readily available at home. It learned that lesson from the disappointment of Go-Gurt, a squeezable tube of fruit yogurt that McDonald's sold in a deal with Go-Gurt's manufacturer, General Mills Despite Go-Gurt's popularity in supermarkets, it didn't sell well at McDonald's and was pulled within a year. "Kids think of McDonald's as a treat, and it's not a treat if you have it at home," said Vicki Spiller, the director of new product purchasing. McDonald's also faces the problem of trying to satisfy contradictory consumer demands. Maura Havenga, senior vice president for supply chain management in the United States, said that a lot of McDonald's customers say in focus groups that they want healthy food, but less than 10 percent actually buy the salads. "Everyone says they want a veggie burger, but we sell about two or three a day in stores that sell still them," she said. For that reason, McDonald's is cautious in introducing products, especially nontraditional ones like sliced apples. Mr. Lepine's team took three years just to get the internal approval to move ahead with consumer testing on the Apple Dippers. It took an additional year to complete the required four stages of focus group research. Mr. Lepine was among those who wanted to sell apple slices without the sugary dipping sauce. But because McDonald's insists that all new products get a clear thumbs-up from more than 70 percent of its test customers, dipless apples did not make the cut. "The cost of failure is extreme," Ms. Spiller explained. "We have 26 million customers we serve every day in the U.S., and we've got to make sure we get it right." It helps if healthy food looks nice, too. The premium salads were designed, in part, for aesthetic appeal. Cheap and reliable iceberg and romaine account for 90 percent of the lettuce in the salad; the 10 percent smattering of spring mix is intended to make the salads more attractive to the eye as well as the palate. The carrots in the salads, for example, are sliced so thin that customers are lucky if they end up eating one-quarter of a small carrot, but the delicate slices don't fall to a puddle at the bottom of the bowl. "Women look at the salads and say, 'It's beautiful,' " said Ms.

Spiller, proudly. About 80 percent of salad buyers at McDonald's are women, she added. Healthier fare does not come cheap, for McDonald's or its customers. Fruits and vegetables are much more expensive and complicated to ship and store than meat and potatoes. Unlike meat patties, chicken breasts, French fries and other items on the McDonald's menu, salads and fruit cannot be frozen and stored for a month in distribution centers. Shipments of Apple Dippers and salad components leave McDonald's warehouses several times a week, which is part of the reason salads cost $4 and everything else can be had for less than $3. The care required for perishable food also raises the costs. Spring mix is much more delicate than iceberg and romaine lettuce and is twice as expensive, said Bill Zinke, vice president for marketing at Ready Pac, which supplies McDonald's with all three kinds. "It's almost like you have to protect every leaf," he said. Similarly, grape tomatoes, which dot the lettuce on McDonald's salads, are more than double the price of plum or standard tomatoes. Despite the fragility of the salads and fruit, McDonald's says it does not use any artificial preservatives or additives to keep them fresh longer. The calcium ascorbate in the Apple Dippers is not much different from the orange or lemon juice that many people pour on their homemade fruit salad to keep it from browning. At Ready Pac's plant in Irwindale, Calif., oxygen is sucked out of the large lettuce packing bags and replaced with nitrogen, an inert gas. This is the same process used on bags of lettuce sold in supermarkets, and, as a result, the McDonald's supply of spring mix lasts about the same as they do: 14 days. Because of that, said Mr. Smith, the McDonald's executive, "we have to have a very tight-knit distribution network." PRESERVATIVES were a big issue for Newman's Own, which is responsible for supplying dressing for the salads. When McDonald's first approached the company in early 2002, Paul Newman, the actor who is its chief executive, made it clear that the arrangement would have to be on his terms. One condition was that the company would not use artificial preservatives. "When we told them we wouldn't do salad dressings with preservatives, they were a little scared," recalled Tom Indoe, the chief operating officer at Newman's Own. "We taught them they really didn't need them." He added that McDonald's was eager to work with Newman's because of the company's all-natural products and reputation for corporate responsibility. Despite his initial reservations about working with McDonald's, Mr. Newman went ahead because sales to a customer of McDonald's size could improve his company's bottom line - and therefore increase the amount it gives to charity. Newman's Own contributes all its profits to charity; working with McDonald's has increased that amount by more than $3 million a year. As part of the three-year deal, though, Mr. Newman has approval over all advertisements and promotions that feature the premium salads. That represents an unusual concession for a company like McDonald's, which is accustomed to calling the shots. So far, nothing has been rejected, Mr. Indoe said.

Some critics bristle at the notion that McDonald's has somehow become healthier simply because it uses natural dressings and sells salads and some fruit. "Nearly all the entree choices at McDonald's - as well as Burger King and Wendy's - are still all of poor nutritional value," said Margo Wootan, director of nutritional policy at the Center for Science in the Public Interest, a food activist group. "I applaud them for making those changes, but there's still a lot more that needs to be done." Ms. Wootan also points out that the Apple Dipper caramel sauce, which is packaged separately, has nine grams of sugar, one-quarter of the total recommended daily limit under new guidelines of the Department of Agriculture. Other advocacy groups said that they were hopeful that McDonald's would one day use its power not only to get better prices and greater supply, but also to change the way the produce industry operates - for the better. Ronnie Cummins, national director of the Organic Consumers Association, an advocacy group based in Little Marais, Minn., said he would like to see McDonald's buy some organic products, which he believes are more healthful for consumers. In a 2003 report on pesticides in produce, the Environmental Working Group, a public-policy outfit based in Washington, ranked apples as the third-most-contaminated produce group, after peaches and strawberries, in terms of pesticide residue. The findings were based on tests done by the Agriculture Department and the Food and Drug Administration from 1992 to 2001. "McDonald's the company sustainable come a long anything is could have a huge impact," Mr. Cummins said. "They could be that changes agriculture toward a more organic and model." It may sound far-fetched, but from a company that's way from the days of selling mainly hamburgers and fries, possible.