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McDonald's fries cost $10M
Chain to pay vegetarians, Hindus for not disclosing it used beef flavoring in French fries.
June 5, 2002: 5:43 PM EDT

NEW YORK (CNN/Money) - McDonald's Corp. said it would pay $10 million to Hindu, vegetarian and other groups more than a year after a Seattle lawyer sued the fast-food chain, alleging it failed to disclose the use of beef flavoring in its French fries.

The disclosure of the payment and an apology was made in a June 1 press release.

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The world's largest restaurant chain said it "sincerely apologizes to Hindus, vegetarians and others" for improperly describing its fries and hash browns sold in the United States as vegetarian.

The company began calling the products vegetarian after it began using vegetable oil to help reduce cholesterol in the early 1990s, but the fries and hash browns themselves contain a small amount of beef flavoring added during potato processing at plants.

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"We regret we did not provide these customers with complete information, and we sincerely apologize for any hardship that these miscommunications have caused," the release said.

McDonald's payment and apology are part of a wider settlement of five class-action lawsuits charging that the company had misled consumers by wrongly describing its French fries as vegetarian.

The settlement is in line with the terms of a draft agreement reached in March, but McDonald's said at the time that it was premature to comment about a possible deal.

The chain also said it has created an advisory panel on vegetarian and other dietary practices as part of the settlement. The group, including experts in consumer dietary practices, plans to advise McDonald's on relevant dietary restrictions and guidelines.

McDonald's first apologized for "confusion" about beef flavoring used in the fries in May 2001 after Seattle lawyer Harish Bharti sued the company, accusing the chain of deception in its claims of cooking fries in 100 percent vegetable oil.

At the time, company officials disclosed the small amounts of beef flavoring used in the fries and hash browns.

Oak Brook, Ill.-based McDonald's said it was not required by the U.S. Food and Drug Administration to reveal the use of beef flavoring, and that it didn't use the substance in fries sold at restaurants in India or predominantly Hindu countries. Hindus abstain from beef for religious reasons.

The lawsuit by Bharti, a practicing Hindu, came just a month after McDonald's said its first-quarter profit fell 16 percent, hurt by concerns about the safety of the beef in its hamburgers during a scare that mad cow disease had entered the United States.

The settlement is not the first McDonald's has paid out to customers. In August 1994 a jury found McDonald's coffee was unreasonably dangerous after a woman was burned when the coffee spilled on her lap. The judge rendered a punitive damage award of $2.7 million, which was lowered to $480,000 on appeal and eventually settled for an undisclosed amount less than $600,000.

Also, in June 1999 the chain agreed to pay the federal government $4 million in damages for failing to inform the U.S. Consumer Product Safety Commission of playground injuries at some of its restaurants. The allegations involved children who were injured on Big Mac Climbers and the Tug-N-Turn.

Last week the company, which owns Boston Market, Chipotle, Pret a Manger and Donato's Pizza, said it was considering expanding beyond food into retailing as it looks for ways to bolster sluggish sales in the saturated U.S. fast-food market.

McDonald's reported a 16 percent drop in first-quarter earnings in April, but still met Wall Street estimates. Sales increased 5 percent in the quarter.

McDonald's (MCD: Research, Estimates) shares gained 71 cents, or 2.42 percent, to close at $29.99 Wednesday.  Top of page