Amid an historic glut, a secretive, government-sponsored entity is putting cheese anywhere it can stuff it.
In a usual year, Taco Bell juggles about 4,000 new menu ideas. A dozen, maybe, will ever see the light of day. By: Clint Rainey
Trimming all this fat is the job of the chief food innovation officer, Liz Matthews, and a 40-person team of chefs, food scientists, nutritionists, microbiologists, chemists, and even one entomologist (he does food safety). Observers have unironically called this crew fast-food “disruptors.” In the past five years, Matthews’s team has trotted out such blockbuster menu items as the Doritos Locos Taco (in Nacho Cheese, Fiery, and Cool Ranch varieties), a breakfast taco with a waffle for a shell, and a chalupa with fried chicken in place of its usual flatbread. Until a year and a half ago, however, one simple idea had foiled them: a fried tortilla full of oozing, molten cheese.
“Having this fabulous taco with melty cheese in every single bite was something we started dreaming about 10 years ago,” Matthews says. After a decade-long journey of dairy and failure and resolve, that dream eventually became the Quesalupa, a taco served in a cheese-stuffed fried shell whose 2016 arrival was heralded by a Super Bowl ad featuring a cackling George Takei. Costing somewhere from $15 million to $20 million, it was Taco Bell’s most expensive ad campaign ever. And it paid off: The company sold out its run of 75 million Quesalupas during the product’s four-month limited release. Chief Executive Officer Brian Niccol called the launch, which featured its own Snapchat filter, “one for the record books.” Perhaps inevitably, the company began testing a Doritos Quesalupa Crunch in March.
Such is the influence cheese wields over the American consumer. Americans eat 35 pounds of cheese per year on average—a record amount, more than double the quantity consumed in 1975. And yet that demand doesn’t come close to meeting U.S. supply: The cheese glut is so massive (1.3 billion pounds in cold storage as of May 31) that on two separate occasions, in August and October of last year, the federal government announced it would bail out dairy farmers by purchasing $20 million worth of surplus for distribution to food pantries. Add to that a global drop in demand for dairy, plus technology that’s making cows more prolific, and you have the lowest milk prices since the Great Recession ended in 2009. Farmers poured out almost 50 million gallons of unsold milk last year—actually poured it out, into holes in the ground—according to U.S. Department of Agriculture data. In an August 2016 letter, the National Milk Producers Federation begged the USDA for a $150 million bailout.
That Taco Bell is developing its cheesiest products ever in the midst of an historic dairy oversupply is no accident. There exists a little-known, government-sponsored marketing group called Dairy Management Inc. (DMI), whose job it is to squeeze as much milk, cheese, butter, and yogurt as it can into food sold both at home and abroad. Until recently, the “Got Milk?” campaign was its highest-impact success story. But for the past eight years, the group has been the hidden hand guiding most of fast food’s dairy hits—a kind of Illuminati of cheese—including and especially the Quesalupa. In 2012 it embedded food scientist Lisa McClintock with the Taco Bell product development team. She worked with the senior manager for product development, Steve Gomez, to develop a cheese filling that would stretch like taffy when heated, figured out how to mass-produce it, and helped invent some proprietary machinery along the way.
The finished product is mega-cheesy: With an entire ounce in the shell, the Quesalupa has about five times the cheese load of a basic Crunchy Taco. To produce the shells alone, Taco Bell had to buy 4.7 million pounds of cheese.
“Beef and cheese are the most important ingredients to our consumers. But really, cheese”
“Here’s a little secret,” says DMI President Barbara O’Brien. “If you use more cheese, you sell more pizza.” DMI proved this decades ago: In 1995 the then-brand-new marketing group worked with Pizza Hut on its Stuffed Crust pizza, which had cheese sticks baked into the edges. The gimmick was introduced with an ad starring a pizza-loving real estate baron named Donald Trump, and by yearend it had increased Pizza Hut’s sales by $300 million, a 7 percent improvement on the previous year’s. DMI has since estimated that if every U.S. pizza maker added one extra ounce of cheese per pie, the industry would sell an additional 250 million pounds of cheese annually.
The National Dairy Promotion Board created DMI in the mid-1990s to act as an umbrella company for state and local programs promoting the dairy industry. DMI is classified as a commodity checkoff program, a type of booster group for agricultural products funded by their producers. In addition to dairy, there are checkoffs for avocados, beef, cotton, softwood lumber, and an additional 20 or so commodities. The USDA’s Agricultural Marketing Service loosely oversees these programs; they’re authorized by Congress but ultimately answerable to the producers they serve. U.S. dairy farmers pay a compulsory checkoff fee of 15¢ on every 100 pounds of dairy they sell. It adds up: Over the years, DMI has collected hundreds of millions of dollars to promote and conduct research for dairy products.
DMI’s original business plan was almost entirely direct-to-consumer advertising. But when consumers started eating out more in the late 1990s, the group shifted to working with companies that took products to the marketplace—particularly restaurant chains such as Pizza Hut and, eventually, Taco Bell. The DMI arrangement is unusual in fast food’s highly competitive, proprietary world. Taco Bell isn’t the only company benefiting from its expertise. The checkoff also puts DMI’s agents inside Burger King, Domino’s, McDonald’s, Pizza Hut, and Wendy’s, where they’re privy to each restaurant chain’s most closely guarded trade secrets.
Stuffed Crust was on the minds of everyone at Taco Bell as they welcomed McClintock, who was immediately assigned to the languishing Quesalupa project. “What Taco Bell usually needs is one person who’s entirely dedicated to a product,” she says—and sometimes, it seems, just one component of one product. “So that’s what I was for—there to handle cheese.”
It’s worth pausing to note how serious a paradigm change Taco Bell credits DMI with causing: The company’s innovation team once regarded cheese and sour cream as mere garnishes. Now, dairy is often the focal point. Cheese use at the chain has increased 22 percent since the beginning of the DMI partnership. “Beef and cheese are the most important ingredients to our consumers,” Matthews says. “But really, cheese.” For proof, consult a menu. Eight items currently have the word “cheese” or “cheesy” in their name, vs. three with “steak” or “beef.” Breakfast items get a fancy cheddar shred; tacos get a three-cheese blend. Most of the chain’s 7,000 U.S. locations also carry nacho cheese sauce and a spicy queso dip—the first in the company’s 55-year history—introduced to great fanfare last November.
No other cheese at Taco Bell, however, had to perform like the Quesalupa cheese. It had to be what CEO Niccol terms “an experience,” a full five-sense extravaganza of melt and stretch. Before McClintock arrived, Gomez and his team had tested a glorified quesadilla folded in half, but consumers rejected it. “It didn’t live up to the promise of a truly cheese-stuffed shell,” Gomez recalls. Once they tried sealing off the sides, though, “it was like ‘Holy crap, we can sell this.’ ”
How to mass-produce the shells became McClintock’s problem. She applied her doctorate in chemistry to the cheese filling, comparing various varieties’ chemical compositions, specifically the interplay between molecules of a protein called casein found in the space around milk fat. Think of casein as dairy glue that, at the right temperature and pH, gives cheese its pull by binding water and fat in a smooth matrix.
“If you tried using something like cheddar, you’d get too much oiling off,” McClintock says. “It’s a fattier cheese—it’s not going to hold up well in terms of cheese pull.” She also quickly nixed mozzarella. “Great stretch, but you expect something bold from Taco Bell,” she says. “Pepper jack gave us the extra kick from the jalapeños.” Crucially, it’s also a high-moisture cheese, which means fewer casein connections and therefore a more reliable melt. She toyed with the idea of inserting a cheese “puck” into the tortilla pocket to see if that melted more uniformly, but grated cheese proved the most even. McClintock and Gomez recall intense competitions in the lab where they’d fry up a bunch of Quesalupas and tear them apart to see who could get the longest cheese pull. Winners sometimes stretched theirs a full arm span.
The final products were pre-assembled in factories using the Press, a proprietary machine Bloomberg wasn’t allowed to see. Its basic function is to pressure-crimp the edges of two tortillas without squishing the cheesy center. “When I say it out loud, it sounds so simple,” Matthews says, “but I can tell you, it took a huge team of engineers.” McClintock spent four months traveling among supply facilities for Tyson Foods Inc., Taco Bell’s tortilla vendor, introducing workers to the machinery, which had to be operated manually and was difficult to wrangle. “These 250-pound workers basically had to jump up and down while pulling on it to get enough pressure,” she remembers. After observing it, Niccol told Fast Company, “It looks like that Lucille Ball skit.” Since Taco Bell needed 75 million of these things for the January rollout, Tyson had no choice but to bring in a special team whose job was to yank the Press by hand 75 million times.
“Here’s a little secret. If you use more cheese, you sell more pizza”
DMI argues that its prowess has helped slow Americans’ declining desire for dairy, even as milk and cheese consumption has moved in opposite directions. Demand for milk has gone from 35 pounds per person in 1975 to 15 pounds today, the reverse of the trajectory cheese has followed. But championing dairy also means DMI has promoted lots of saturated fat and cholesterol, which has created its share of controversy. “Americans rely on the USDA for dietary guidance,” says Parke Wilde, a food economist at Tufts University who studies the checkoffs. “All these fast-food restaurant-chain partnerships must be pretty embarrassing for the people at the agency working to promote healthy eating.” Still, DMI’s benefit to the dairy industry is clear: A cost-benefit analysis done by Texas A&M University economists in 2012 shows that every dollar a dairy producer invested in DMI returned $2.14 for milk, $4.26 for cheese, and $9.63 for butter industrywide.
Americans may buy less dairy from the grocery store than they used to, but they still like to eat it. After McDonald’s switched from using margarine in its restaurants to real butter in September 2015—a change DMI lobbied for—the company said Egg McMuffin sales for the quarter increased by double digits. “It wasn’t easier, it wasn’t cheaper, but it was the right thing to do with our food,” says McDonald’s executive chef, Dan Coudreaut, of the changeover. “As our guests’ tastes evolve, McDonald’s is obviously going to evolve as well. If we don’t, then we become a dinosaur.” To help McDonald’s execute the shift, DMI’s food scientists developed procedures for storing and softening it (one of margarine’s primary advantages is its spreadability straight from the fridge), then helped the company locate suppliers for its 14,000 high-volume restaurants.
One of those suppliers was Grassland Dairy Products Inc. in Greenwood, Wis., the largest family-owned butter manufacturer in the U.S., which operated its factory seven days a week to churn out 2.4 million pounds of butter to satisfy McDonald’s prelaunch butter needs. In April, Grassland announced that its exports to Canada, worth millions, had evaporated because of protectionist pricing guidelines and quotas the Canadian government instituted, causing the conglomerate to suspend milk contracts with 58 dairy farms. Grassland President Trevor Wuethrich said in a statement to Bloomberg that the company has seen an overall increase in demand despite the quotas, which it attributes to “changes made by McDonald’s” as well as consumers “seeking simple and natural products,” something else DMI takes partial credit for.
Wisconsin Governor Scott Walker wrote a letter of complaint to President Trump in April over the Canadian policy. During a visit to Kenosha later that month, Trump publicly blasted Canadian milk subsidies as “a disaster” and “very, very unfair,” and predicted they’re “not going to be happening for long.”
Canada aside, DMI is betting hard that the industry’s future will be abroad. In 2009 the group commissioned Bain & Co. to study globalization’s impact on the industry. The report was optimistic about exports overall but urged producers to “take action now.” It predicted milk demand would grow by 7 billion pounds over the next four years as consumer interest explodes in Asia, Latin America, northern Africa, and the Middle East. Bain concluded that U.S. dairy producers were “well-positioned” to fill that gap.
DMI is a pro at getting cheese into foods that never had any, but many dairy farmers are nostalgic for the days when milk was boxed in cartons and served in every kid’s lunch rather than ultrafiltered for use in cheese manufacturing. Harry Kaiser, an economist at Cornell University who for years oversaw DMI’s annual report, argues that farmers’ disillusionment stems from changing consumer habits. When the checkoff got its start 20-plus years ago, “milk really was just a commodity,” he says. The current consumer emphasis on quality and simplicity would seem to create an opportunity for small-time producers with a story to tell. DMI, however, is not a small-time business, which has made certain farmers averse to checkoffs. “They’re saying, ‘Well, look, I sell organic milk,’ or ‘I make really great cheese, and it’s not a commodity now, it’s a brand,’ ” Kaiser says.
Other farmers complain that DMI was pitched as a self-help program for everybody, but it disproportionately benefits Big Dairy. According to DMI, half the industry’s 43,000 farmers have 500 cows or fewer, but that’s not who gets tapped to fulfill major food-service contracts (e.g. Grassland).
Farmers such as Skip Hardie, a dairy farmer in upstate New York who’s on DMI’s board, argue the benefits filter down. “You have to keep in mind that the raw product to make that cheese or butter or yogurt is milk,” he says. “So if McDonald’s all of a sudden switches to butter, a lot of dairy farmers in the United States are going to sell more milk. Any time you create new demand for a dairy product, it’s removing milk from the market that would have had to find a home someplace else.”
Others, such as Brenda and Joe Cochran, beg to differ. The Cochrans raise 130 cows on 283 acres in north-central Pennsylvania, and in 2003 sued the USDA and the National Dairy Promotion Board, DMI’s parent group, arguing that by paying into the checkoff, they were being forced to subsidize speech—“Got Milk?”—they didn’t agree with. “To us, it doesn’t matter if it’s a small Amish farm with Jersey cows on a pasture system or a big multigenerational family farm, we feel the farmer is still being misrepresented by what the checkoff is communicating,” Brenda says. “We produce our milk in a certain way, then it gets commingled with other production paradigms, and then somehow it’s generically abracadabra’d into a standard product offered to consumers. That’s not truth.”
A Pennsylvania district court sided with the USDA, but its decision was reversed on appeal by the 3rd U.S. Circuit Court of Appeals. The Cochrans’ legal victory was short-lived: The following year the Supreme Court took a case brought by the Livestock Marketing Association against USDA and the beef checkoff, alleging that “Beef: It’s What’s for Dinner” elided the difference between, say, a chuck steak and a grass-fed porterhouse.
Checkoff critics had high hopes. Legal scholar Laurence Tribe was the ranchers’ attorney, and Justices Antonin Scalia and Ruth Bader Ginsburg both seemed annoyed by the government’s protected-speech defense. (“What is the government speech?” Ginsburg asked. “If you went to the surgeon general, probably that message would be ‘Eat meat moderately.’ ”) But the court ruled against the ranchers, rejecting Tribe’s argument—identical to the Cochrans’—that the government was forcing them to “engage in speech they don’t agree with.” Armed with legal precedent, checkoff groups have invoked protected speech as the basis of every defense they’ve mounted since.
Congress is feeling pressure from agricultural groups to limit checkoffs, largely because of the American Egg Board’s two-year effort to kneecap eggless-mayonnaise maker Hampton Creek Inc., which came to light in 2015. (Hampton Creek effectively kneecapped itself later by having contractors buy its Just Mayo spread in bulk from stores, creating artificial demand. A trickle of board resignations culminated in mid-July, when the entire directorship, except for the CEO, resigned.) In March, Republican Senator Mike Lee of Utah and Democratic Senator Cory Booker of New Jersey, simultaneously with Republican Representative David Brat of northeast Virginia, introduced the Opportunities for Fairness in Farming Act, which is designed to “bring much needed reforms to federal checkoff programs” by “cracking down on conflicts of interest and anticompetitive practices, and bringing additional oversight and transparency,” Booker said in a press release.
O’Brien of DMI defends her group by pointing out that its acting order was never to address the needs of individual farmers—rather, it’s built on the philosophy that “all boats will rise.” McDonald’s Coudreaut says the stakes are much bigger than individual farmers. “I think about the 27 million people eating in McDonald’s every day and how they’re being exposed to real butter now,” he says. “I don’t want to bad-mouth margarine, but when I grew up, Mom brought out butter at Christmas and Easter. Now people are exposed to real butter when they eat the food at our restaurants, and I think that’s pretty cool.”
At Taco Bell, McClintock’s next challenge is automating the manual assembly for the Quesalupa 2.0, which is under development and is rumored to come in two new flavors, Volcano and Bacon Club. If she succeeds, it could open up a whole other level of scale. Of course, the 2.0 version of the Press is also shrouded in mystery, but McClintock does mention “figuring out how to get robots to pick up cheese and put it on tortillas” and things moving “at very, very high speeds.” Maybe it will be enough firepower to truly mass-produce Quesalupas. Get them in the frozen aisle of Walmart and Kroger, DMI would argue, and now you’re moving miles of cheese.