Before Ray Dalio built Bridgewater Associates into one of the world’s largest hedge funds, he was advising clients on a more basic business problem: the cost of feeding chickens.
That expertise, according to Dalio, helped McDonald’s to solve an early obstacle to introducing Chicken McNuggets, now one of its most popular products.
Back in the early 1980s, amid a volatile chicken market, McDonald’s needed help pricing their nuggets and limiting the risk of menu price fluctuations. Sudden changes in chicken feed costs made it difficult to price the nuggets long-term. To address this dilemma, McDonald’s hired a young consultant to hedge the cost.
Just a few years earlier, in 1977, the U.S. government announced dietary goals urging Americans to “decrease consumption of meat and increase consumption of poultry and fish,” following a report by the American Heart Association on dietary cholesterol. At the same time, rising concerns about cardiovascular disease made many Americans more health-conscious.
McDonald’s, which had built its business as a red-meat burger chain, followed the U.S. government’s advice, and turned to poultry. In 1981, McDonald’s launched Chicken ’n Chips, a combo of fries and boneless chicken pieces, however this meal was eventually phased out in favor of the McNuggets. In the mid 1970s, most Americans picked beef as their meat of choice, followed by pork and then chicken. By the 1990s, beef and chicken switched in popularity.
In the early 1980s the chain looked to Dalio, whose expertise in agricultural commodities and previous work at Shearson Hayden Stone advising cattle ranchers and crop producers on how to adapt to various risks made him a qualified candidate for the job. Dalio, then building a scrappy Bridgewater Associates, already worked with one of America’s largest poultry producers as his client, which became a helpful connection in the McDonald’s assignment.
“I went to one of my chicken-producing clients and McDonald’s, and I showed how this chicken-producing client could hedge the price and give them a stable price,” Dalio told Bloomberg on the “Odd Lots” podcast last year. “Because of that, they were able to put Chicken McNuggets on the menu.”
Dalio explained that chicken feed, which is essential to maintaining chicken and primarily made of soy and corn, is the most costly ingredient in the adored fast-food snack’s production process. The chicks themselves weren’t expensive, however soymeal and corn costs were turbulent. Dalio’s suggestion was to combine these two ingredients into a synthetic future—and it paid off.
“The cost of a chicken has nothing to do with the price of the chick,” Dalio explained on Bloomberg’s “Masters in Business” podcast in 2022. “It has to do with the price of the grain that you feed the chick.”
McDonald’s launched Chicken McNuggets in 1983, and within months the once red-meat centered chain became the second largest chicken retailer in the world, today selling 700 million pounds of nuggets annually.
Dalio’s expertise helped to place him and Bridgewater Associates on the map—but the billionaire doesn’t claim to be the creator of the Chicken McNugget, and thinks it would be “overreaching” to say so.
From apartment to hedge fund
Dalio, now 77, founded Bridgewater Associates in 1975 from his two-bedroom New York City apartment, two years after graduating from Harvard Business School. The firm initially advised corporate clients Dalio knew from his prior Wall Street career.
The McDonald’s assignment built Bridgewater’s credibility and reputation as a consulting and hedge fund firm, and helped the company eventually score a $5 million investment from World Bank, their biggest early investment made possible by the McDonald’s collaboration.
As the firm grew, Dalio moved Bridgewater to Wilton, Conn., in 1981, operating from a converted barn that doubled as both office and home. Dalio described the unconventional experience in his 2017 book Principles: Life and Work.
“By the mid-1980s, Bridgewater had grown to about ten people, so I rented a big old farmhouse,” Dalio wrote. “Bridgewater occupied part of it and my family occupied the rest. It was extremely informal and family-like: Everyone parked in the driveway, we met around the kitchen table, and my kids would leave the door open while they sat on the toilet. The people I worked with would wave as they walked by.”
As of July, Bridgewater manages over $102 billion in assets and has been exploring AI-supplemented investing under its new CEO Nir Bar Dea, who took over for Dalio in 2022.
“Great partnerships come from sharing common values and interests, having similar approaches to pursuing them, and being reasonable,” Dalio wrote. “When there were five of us it was totally different than when there were fifty of us, which was totally different than it was when we were five hundred, a thousand, and so on. As we grew, most everything changed beyond recognition, except for our core values and principles.”
