McDonald's latest apple push makes suppliers happy

Fri Jul 29, 2011 3:20pm EDT

* Putting apples in all Happy Meals should help suppliers

* McDonald's had fruit shortage during smoothie launch

* Potato suppliers may see reduction in fries sold

By Eunju Lie

CHICAGO, July 29 (Reuters) - Adding apples to all McDonald's Corp (MCD.N) Happy Meals starting in September is a healthy decision by the world's largest hamburger chain -- at least for apple suppliers.

Currently 10 percent to 12 percent of Happy Meals are sold with a side of apple slices as opposed to french fries, according to Mark Gedris, director of communications and membership at the U.S. Apple Association.

The apple portion of Happy Meals will shrink to 1.2 ounces from 3.1 ounces when the changeover occurs, but the supply of apples that McDonald's will need will skyrocket since the number of the meals with apples will increase ten-fold.

McDonald's will need to make sure that its apple supply keeps up with sales, or it could run into some problems as it did last summer with its McCafe Real Fruit Smoothies.

When McDonald's launched the smoothies, it rescinded its giveaway of samples because of a shortage of fruit.

"With the smoothies, the results far exceeded anybody's plans," said Bob Goldin, executive vice president of Technomic.

This time, McDonald's is likely to be more prepared.

"The apples go into a very predictable number of Happy Meals, so they're really able to do some materials planning based on sales pattern," Goldin said.

The Happy Meal has been a huge hit for McDonald's, which declined to say just how many of the meals it sells.

The meals account for less than 10 percent of U.S. sales, according to McDonald's spokeswoman Danya Proud.

Still, that's a huge business, as McDonald's posted $8.1 billion in U.S. sales in 2010.

Based on an estimated average price of $3.69 per Happy Meal, McDonald's would have sold about 220 million of the meals in the United States last year. Of those, around 24 million Happy Meals were likely sold with apple slices, using the U.S. Apple Association's finding that 10 percent to 12 percent are sold with apple slices.

The new Happy Meals should ultimately end up benefiting apple growers and processors.

"It's wonderful for the apple suppliers ... big increase in their sales and demand," said Goldin.

DOMEX Superfresh Growers, one of McDonald's apple suppliers, should benefit "indirectly, by participating in the halo effect," said Howard Nager, its vice president of marketing.

Tree Top, another apple supplier, declined to comment.

In addition to adding apple slices to all Happy Meals, McDonald's is cutting the french fry portion by more than half. [ID:nN1E76P0LJ]

Slimming down the amount of fries served with Happy Meals could crimp McDonald's main french fry suppliers, J.R. Simplot Co and McCain Foods Inc. However, McDonald's is not expecting any change in its relationships with potato suppliers, according to Proud.

"If you think about the number of fries we sell, this will have a minimal impact, if any," Proud said.

Simplot and McCain could not be reached for comment. (Editing by Steve Orlofsky)