Memorandum to the Environmental Audit Select Committee

From McDonald's Restaurants UK Ltd

In July 2007, McDonald's announced that we had started to convert our delivery fleet to 100% biodiesel, made from our own recycled cooking oil[1]. The move to biodiesel:

· Uses cooking oil from our existing waste stream to fuel our distribution fleet, an efficient use of a waste product

· Eliminates fossil fuels from our distribution fleet making a considerable impact on reducing our carbon emissions

· Continues to support UK farmers who grow sunflower and rapeseed crops for our cooking oil

The Conversion Process

Used cooking oil (UCO) is collected from around 900 McDonald's restaurants across the UK. It is then settled and processed-to meet the requirements for conversion into high quality biodiesel -before being combined with pure rapeseed oil[2] and put through a manufacturing process to produce EN14214 grade biodiesel. Currently, the ratio is 85% UCO and 15% pure rapeseed oil. We are continuing to work with our suppliers in order to reduce the required volume of pure rapeseed oil in the manufacturing process and we would like to move closer to 100% UCO.

Just under one third of the McDonald's 155 strong delivery fleet has been converted to run on the fuel, and we are continuing to work on converting the remainder of our fleet. We have introduced refuelling facilities at each of our distribution centres to minimise the prospect of vehicles running low on McDonald's fuel and needing to revert to other fuel sources.

Challenges

We needed to overcome several challenges during the development of this system, in particular in relation to vehicle suitability to the new fuel. Our approach was to divide the responsibilities with our distribution partner Keystone. McDonald's focused on working with our two vehicle suppliers, Volvo and DAFF, to get them to agree to maintain warranty support, whilst Keystone worked on converting the vehicles to the new biodiesel.

The greatest challenge has been negotiating warranties on these vehicles with our vehicle suppliers, from whom there was considerable resistance to the switch. We worked with Euroway -Keystone's fleet operator-to construct a convincing case. For one of our two-vehicle suppliers, a considerable portion of time was used to negotiate down a very large insurance premium they had been demanding, in order to keep the process affordable.

We were eventually successful in negotiating down the supplementary insurance premium, but there is still a modest cost increase from one of the manufacturers for using our biodiesel instead of standard diesel. In addition, there are service cost increases. However, compared to the standard price of diesel there are still cost benefits.

Similarly, there were challenges in relation to the service schedules of the vehicles. Schedules were revised specifically to prevent an increase the time spent off the road.

Commercial viability

Despite cost savings through no longer needing to buy commercially available diesel or biodiesel, the scheme currently costs a small additional amount than previously, varying with changes in UK oil prices.

However, we are working on further efficiencies within the system, including reducing the need for pure rapeseed oil which could balance this out.

Commercial viability is a crucial element to the long term success of the scheme, and should serve as encouragement to other businesses in similar situations looking to make similar changes, without significant financial implications on their businesses.

McDonald's currently takes advantage of the Government's Fuel Duty Incentive and we will monitor changes to this policy after 2010.

Initial findings / Impact

We are pleased that reductions in energy efficiency as a result of the move to biodiesel are considerably lower than had been predicted. We had prepared for reductions of between 10 and 15 per cent, but after continuous measuring of the fleet usage, we have found the efficiency reduction to be closer to 3 per cent.

Based on an independent technical report and external data sources, we believe the carbon equivalent saving of the move will be in the region of 1,675 tonnes annually, once national roll-out is completed in Summer 2008. To put this into familiar context, it is equivalent to removing 2,424 family cars from the road each year.

Additional environmental efficiencies in our distribution fleet

McDonald's has 1,200 restaurants around the country and the reality of ever increasing fuel prices coupled with our goal, to reduce our carbon impact across our business have fuelled a search for reductions from the impact of our distribution network. We have introduced a number of initiatives in order to achieve this, including the decision to operate multi-temperature delivery vehicles. These allow for the safe transportation of fresh, frozen and nonfood goods in the same vehicle, thereby minimizing the number of deliveries required.

In this period we have also introduced new methods of loading deliveries to make sure we are maximizing the use of space inside our vehicles, and this has allowed for a reduction in the number of delivery vehicles in our distribution fleet by over 10% compared to the previous year.

In addition, in 2007 we undertook a review of our delivery schedules and we were able to identify an additional 5% in efficiencies in the number of journeys and miles driven.

Other Environmental Developments

McDonald's approach to the environment is reduce, reuse, recycle. We have made a number of additional changes, both to the way in which we source our food, and to the way in which our restaurants operate in order to make significant improvements to the sustainability of our business. These include:

· All of our packaging is made out of at least 70% recycled materials

· The average restaurant wastes less than 1% of their food through accurate sales forecasting. Restaurants also recycle their cardboard waste and delivery containers for buns and shakes and are washed and reused.

· We use energy saving light bulbs, more effective energy management systems in the kitchen and are trialing new technologies such as solar panels and hydro carbon refrigerants

· Litter-we walk on average 3,000 miles a week picking up litter from streets around our restaurants, and run more than 250 Just Bin it community clean-up events a year

· We only serve Rainforest Alliance certified coffee in our restaurants.

· All the eggs used in our breakfast menu are free-range

· All our fish is sourced from Marine Stewardship Council certified sustainable stocks

· Soya and the rainforest: we moved quickly to get Amazon soya out of our suppliers' chicken feed. working with Greenpeace, we formed an alliance with others-Asda, Waitrose and M&S-to put pressure on the supplier to sign a two-year moratorium to prevent buying soya from newly deforested land in the Amazon

11 December 2007

[1] This switch to 100% biodiesel follows an extensive trial by McDonald's and our distribution partner, Keystone Distribution UK, which began in August 2006. During this trial, 150,000 litres of McDonald's used cooking oil (UCO) was collected and successfully added to the conversion process for high-quality EN14214 grade biodiesel.

[2] Sourced according to our stringent Agricultural Assurance Programme standards.