Potential Fast Food Industry Investment Commerce Essay


Today, there is no way to deny that the fast food industry does not have a solid hold on our economy. Overall, it is a multi-trillion dollar industry and leading export (Standard and Poor's, 2005a). This means that the industry is not only a center of focus in the daily lives of so many Americans, but it has a lot of influence on our economy also. These chains provide the solution for today's mindset of "I need it now". They provide an array of products that interest many individuals and the food is provided to them in a flash. It is an extremely attractive alternative to sit-down restaurants because the food is on-the-go for busy lifestyles and inexpensive for those on a budget. With that being said, there are numerous ethical issues that face the fast food industry.

The first and most obvious issue is obesity. According to the National Bureau of Economic Research, "since the early 1970s, the share of children age 6 to 19 classified as overweight has more than tripled, from 5 percent to 17 percent, while the share of adults classified as overweight or obese rose from half to two-thirds of the population" (Do Fast Food Restaurants Contribute to Obesity). Despite what most believe it is difficult to find a direct cause-and-effect relationship among fast food and obesity. However, there are many facts that support that the two do indeed affect each other. First, the number of fast food restaurants have doubled over the same time period as the statistic previously stated (Do Fast Food Restaurants Contribute to Obesity). Also, proportion sizes have come under large scrutiny within the past several years because of information stating that proportion size is a key factor causing obesity. This leads to the questions of where should these fast food chains be built and how many should there be? These are major questions because they could be located in areas where obesity is prevalent in order to bring in more sales, or they could be built in areas of poverty because of the low costs to consumers. Additionally, what classifies a product as "too big" when it comes to proportion size and how much should they serve? "Portion sizes offered by fast- food chains are often two to five times larger than when first introduced" (Young & Nestle 239). By cutting down on portions fast food companies are cutting costs, but at the same time potentially sacrificing customer satisfaction.

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           A second ethical dilemma facing this industry is the advertising strategies for these companies. With the obesity epidemic on the rise, researches have looked into the effects of advertisements on young children, the most vulnerable individuals. Overall, "American children, counting only those aged five to fourteen, spend  $20 billion annually and influence the spending of $200 billion to $500 billion more." (Brownell & Warner 267). What's even more astonishing is the ability of children to recall events or content that they have been exposed to only once. Young children have displayed product preference after a single advertisement, which increases in strength with multiple exposures (The Impact of Food Advertising on Childhood Obesity). Consequently, the ability of the food industry to target and expose these individuals to advertisements could influence parents' spending habits and consumption as well. Therefore, what exactly is an ethical way of advertising to children?

           The third and final issue that the food industry must deal with is the actual ingredients that makeup the food. The movie Supersize Me, along with many other articles and books, have brought to light the true facts about what goes into these foods. In an article written by ABC News a food poisoning attorney by the name of Bill Marler claimed, "it's common for up to 10 percent to 12 percent of that juicy burger you're about to pop into your mouth to be "ammoniated beef product"-scraps and trimmings left over from slaughter that used to be relegated for use in pet food" (Farnham). In order to cut costs, fast food companies have the power to choose whether or not they want to use products that consumers would disagree with. Overall, these large corporations have many ethical dilemmas they must face in every aspect of their production. They must be careful to abide by government laws and listen to their consumer market in order to remain a profitable business. Making an unethical decision could potentially cause long-term harm to consumers as well as the business itself.

Pressures Facing the Fast Food Industry

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Over the past decade the fast food industry has not only been under public scrutiny, but also legislative pressures to change their irresponsible ways or literally pay the price. There are three major areas that are pressuring the fast food industry to change its unethical practices: media, healthcare costs, and procurement. The most recent and public lawsuit, Pelman vs. McDonald's, which was eventually dismissed, put McDonald's in the hot seat like never before. The case accused McDonald's of "deceptive advertising, sales, promotion; produced food that was unreasonably safe, and failed to warn consumers of the danger's of its products" (Mello, Rimm, Studdert, 2003).

In addition, many critiques parallel the additives in fast food to the chemicals added in cigarettes. Before legislators cracked down on cigarette companies there were many reports that claimed cigarettes were safe in moderation for consumers.  The major fast food corporations are currently singing this same tune to the naysayers that claim their food is unsafe. Currently, there is no evidence that fast-food companies manipulate their food to activate addiction in their products; however, this is evidence that specific foods can trigger overeating. With health care becoming a national topic of concern, the more pressure the fast-food industry will be under. Currently taxpayers are paying billions of dollars to cover health costs, many of which are linked to health conditions brought on by obesity.

As the pressures to fix our country's economic problems are discussed in Washington, the fast-food industry could be grouped into the legislation for a proposed solution. The Corporate Social Responsibility in the Supply Chain: An Application in the Food Industry identifies many infractions that the food industry has received criticism for specifically by conducting business with unethical vendors along the supply chain. The main issue with this process is that suppliers in recent years have restructured into factory farms, which has significantly reduced the costs of meat production. However, a result of this is more inhumane animal infractions that the fast-food industries are single handedly funding. Also, increased meat production and therefore disposal of meat products raises the levels of methane in the atmosphere. This in turn has pressured McDonald's to create purchasing guidelines to support more sustainable practices. However, other fast-food companies have not followed suit in this ethical dilemma. With several factors weighing on the future of the fast-food industry it will be interesting to see if the industry will continue to flourish or begin to accept more corporate social responsibility. There seems to be so much volatility and uncertainty that we would not recommend investing Virginia Tech's funds here.

Corporate Social Responsibility Activities

Fast food has been criticized for years over issues ranging from claimed negative health effects, alleged animal cruelty, cases of worker exploitation, and claims of cultural degradation via shifts in people's eating patterns away from traditional foods. Concerns such as caloric content, trans fats and portion sizes have also come under scrutiny. Fast food companies have conjured up new recipes and ideas for healthier menu options in response to pressures from a health conscious society, the media, and new legislation that has been put in place. While most believe that the fast food industry has become healthier because companies now serve salads, fruit cups, and oatmeal, that conclusion is not necessarily true.

According to studies, calorie counts remain the same for existing items on the menu. While there have been healthy options introduced to the menu, not much has been done to reduce the high-calorie food items. All of these issues beg the question, is the fast food industry improving the social and environmental impact their business activities have on society? According to an article titled from the Environmental News Network (ENN), some cities like Philadelphia and New York City, it is already required that menu labeling is mandated by the Patient Protection and Affordable Care Act of 2010. All consumers will be able to see the amount of calories for all food items posted at food vendors, including more than 20 locations The idea is that once these menus with calorie counts start showing up around the nation, more pressure will be put on those companies to adjust their products to more healthy choices (Winter, 2012).

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McDonald's is the "poster child" for criticism in the fast food industry, in large part due to the documentary "Super Size Me," which is a 2004 American documentary film directed by and starring Morgan Spurlock, an American independent filmmaker. Spurlock's film follows a 30-day period from February 1 to March 2, 2003 during which he ate only McDonald's food. It explores the fast food industry's corporate influence, including how it encourages poor nutrition for its own profit. But, since then McDonald's has worked to change that perception (Smith). In August of 2008, "McDonald's USA opened its first corporate-owned pilot green restaurant and received Leadership in Energy and Environment Design (LEED) Gold certification in April 2009" (Unknown, 2011) This "green" restaurant was opened in Chicago and some of the attributes include high efficiency plumbing fixtures, permeable pavement and rainwater collection for irrigation, and energy-efficient equipment and lighting. They also opened their second fully green restaurant in North Carolina in early 2010.

Since the appeal of fast food is starting to dwindle in the United States, many companies are making big efforts to gain a larger market share in Eastern countries with China and India being their main targets. While McDonald's has expanded their operations globally, they have improved their supply chains and required their suppliers to adhere to stricter regulations to improve their environmental sustainability. In addition to their supply chains, McDonald's has also invested heavily in green buildings along with making the effort to switch to Fairtrade coffee and other such initiatives. With the sheer vastness of their supply chains, these operational changes can have large positive repercussions. McDonald's has made it clear that despite their CSR shortcomings in the past, they are committed towards a more sustainable future.

Another fast food chain that practices good corporate social responsibility is Chipotle Mexican Grill. They are praised for their origins and food preparation, which is mainly unprocessed, seasonal, family-farmed, sustainable, nutritious, naturally raised, added hormone free, and organic. Forty-five percent of Chipotle's beans are organic and their restaurants purchase ingredients from local farmers in the timeframe that it's available (Ecolectual, 2011). They also serve more naturally raised meat than any other restaurant company in the United States. One hundred percent of its chicken and pork are naturally raised, with beef coming in at sixty percent. They have the Food with Integrity program guidelines be met. Also, the processing facilities need to be USDA certified by a third party for food safety.

Although McDonald's is improving its image and CSR, it is one of the largest consumers of paper products in the United States every year. But, Taco Bell and KFC are the number one paper consumption and subsequent waste users in the fast food industry. In North America, the Southern forest supplies sixty percent of the United States and fifteen percent of the world's demand for paper. Along with urban sprawl, deforestation for wood and paper products has resulted in a decline from 356 million acres in Colonial time to 182 million acres today. The Southeastern portion of the United States has the highest number of endangered ecosystems in the country (David, 2008). Overall, the fast food industry is making strides to be better corporate citizens, but there is still much to improve on. The dollar is still king when making some ethical decisions in this industry, so having a high CSR is going to be an uphill battle.

Social/Ethical Investment Policy Recommendations

In 1970, the renowned economist, Milton Friedman, wrote an article in the New York Times titled, "A friedman doctrine," in which he argued that the main purpose of a business is to generate profits for shareholders. Furthermore, he stated, "A corporation is an artificial person and in this sense may have artificial responsibilities, but "business" as a whole cannot be said to have responsibilities, even in this vague sense" (Friedman, 1970). Since then, society's viewpoint on business has drastically evolved, and for the better. Due to societal and media pressures, companies are requesting more transparency in their actions, and viewing CSR and ethics as top priorities when conducting business. Therefore, it is only in Virginia Tech's best interests, both financially and ethically, to consider CSR and ethical issues pertaining to the fast food industry before making an investment. Ethically, Virginia Tech must take these factors into account if it wants to maintain a good reputation and relationship with businesses, students, and society. In addition, Virginia Tech may benefit financially since research indicates a positive relationship between CSR and corporate financial performance, also known as CFP (Saleh, 2011).

In previous years, companies have fallen due to unethical practices in order to make a considerable profit. For example, Enron engaged in business fraud to generate profit to satisfy stockholders, auditors, and the board. In turn, Enron's reputation took a toll for the worst and led to its collapse. Therefore, I believe that it is certainly appropriate for Virginia Tech to give up a portion of expected financial return for ethical reasons. Virginia Tech will benefit more in the long run if it abides by ethical standards and forgoes a profit, rather than tarnishing its brand.

Although, the fast food industry is legal and highly profitable, Virginia Tech should avoid investing in this industry for ethical reasons. In recent years, the highly profitable, $160 billion fast food industry has been under much scrutiny and debate because of its unethical practices in areas such as the media, healthcare costs, and procurement. While the majority of the fast food industry is unethical, there are companies that currently strive to display CSR within their business strategies. Chipotle and Subway are prime examples of companies that practice CSR and reinforce ethical business guidelines. As previously stated, Chipotle is known for its ethical food preparations and "Food with Integrity" program (Ecolectual, 2011). In addition, Subway, "is committed to providing a wide range of great tasting, healthier food choices while reducing our environmental footprint and creating a positive influence in the communities we serve around the world" (Unknown, 2012). In turn, consumers have been drawn to the healthier selections and ethical conduct illustrated by each of these fast food companies.

Despite these efforts, there are prominent examples of unethical food companies, such as McDonald's and Burger King that fail to implement CSR and ethical business practices. Instead, these fast food chains use unethical advertising practices and offer unhealthy or questionable food options, consequentially ruining their reputations. Although, Virginia Tech could financially benefit in the short run from investing in the $160 billion fast food industry, the unethical and negative impacts associated will ultimately lead to the university's demise.

Investment Recommendations

As an investment for Virginia Tech, we are looking to see if they should invest due to financial or ethical reasons. In the financial perspective, Virginia Tech could make a large profit by investing more money into different fast food chains. However, in hindsight, it would not be a good long-term, financial investment for Virginia Tech. Furthermore, Virginia Tech should not invest in the fast food industry if they want to maintain their ethical reputation as a university.

Today, fast food companies are conducting business legally, but also unethically. For example, many are using factory farms, which is a form a animal cruelty as well as a waste of excess meat. Also, due to the health concerns caused by greater access, convenience, and intake of fast food, Virginia Tech should not invest in some fast food companies. However, we are not suggesting that the university should remove all establishments from campus, but rather be more careful and ethical as possible when selecting which companies to use. If Virginia Tech allows a highly unethical fast food company to serve food on campus just to gain a considerable profit, the university's good standing with the students, staff, or the community may be damaged in the long-run. Therefore, we recommend that Virginia Tech conduct thorough evaluations-including health concerns, operations and conditions, and media coverage-before investing in a fast food company.