Canadian quick service restaurant (QSR) group MTY Food Group (TSX: MTY) has come under scrutiny for alleged false statements in public filings to investors on a hot-button sustainability topic.
Quebec-based MTY Food Group owns an extensive portfolio of restaurant brands, including Blimpie, Cold Stone Creamery, Baja Fresh, Pinkberry, and Papa Murphy’s, along with several dozen others, with over 7,100 global restaurant locations.
The company initially came under fire last year from NGOs who, unhappy with the use of caged eggs in the supply chain, called on large institutional investors to sell their shares if MTY failed to address the issue.
MTY could be in further trouble with investors and regulators after making apparently false statements on the issue in public filings. Adding to the controversy, the statements were made at the same time as company founder and Chairman Stanley Ma was selling off nearly $30 million of personal shares in the company.
MTY Food Group: Misalignment with industry data
The latest controversy began last year when, in response to concerns on the cage-free issue and its potential business impact, MTY Group noted in a public filing to investors that shifting to cage-free eggs was overly challenging due to supply limitations and cost.
“Of the 109.5 billion eggs produced by US companies in 2022, conventional egg account for 90% of the volume,” the company told investors in its filing. Regarding cost, MTY added that “the Company determined it will cost between 25% to 55% more to switch from conventional eggs to cage-free options.” Because of these and other factors, MTY had not set a timeline for shifting to cage-free eggs across its supply chain.
Publicly available data from the United States Department of Agriculture (USDA), however, shows MTY’s assertions to investors to be highly inaccurate. The USDA, which posts online weekly and monthly reports on egg volumes and pricing, stated that 38% of the US egg layer flock was cage-free at the time of MTY’s filing — not 10% as MTY Food Group claimed to investors.
Similarly, USDA data shows the price differential between conventional eggs and cage-free eggs in the US — where the large majority of MTY’s restaurants are located — to be far lower than the company claimed to investors.
The USDA’s publicly available data shows that in the six-month and twelve-month periods prior to MTY’s filings, the price differential between conventional and cage-free eggs ranged from 0-25%, with an average difference of around 10% — a dramatically lower figure than the 25-55% MTY claimed to investors. That average historical price difference range has remained steady in the months since MTY’s filing, and as of the end of 2023 stood at 14%.
Investor relations and market response
MTY Group is likely to now face additional concerns from sustainability-minded institutional investors as well as activist shareholders unhappy about being misled on a topic that could materially impact the company. According to public opinion polls, 42% of American consumers say they would not patronize food companies that fail to enact cage-free policies, and another 37% would think twice before patronizing such businesses.
Furthermore, company founder and Chairman Stanley Ma sold off 465,000 of his personal shares in the company at a value of just under $30 million dollars merely one week after the completion date of this filing, drawing investor scrutiny. In the six months since that time, and in the face of increasing public criticism by NGOs, MTY’s share price has declined by 17%. The NASDAQ Composite improved by 9% over the same period.
MTY Group aside, the cage-free egg issue has been largely resolved among restaurant and cafe operators, with 80% of the world’s 25 largest international QSR brands having set timelines to eliminate caged eggs from their global supply chains.
Groups that have made a global cage-free commitment in recent years include YUM Brands (KFC, Pizza Hut, Taco Bell), Restaurant Brands International (Burger King, Tim Hortons, Popeye’s), Inspire Brands (Dunkin Donuts, Arby’s, Buffalo Wild Wings, Baskin Robbins), Darden Restaurants (Olive Garden, Capital Grille, LongHorn Steakhouse), Focus Brands (Auntie Annie’s, Cinnabon, Moe’s Southwest), JAB Holdings (Panera, Krispy Kreme, Caribou Coffee, Peet’s) and Jollibee Foods Corporation (Jollibee, Red Ribbon, Smashburger), among others.
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