McDonald's and KFC-parent Yum apologized to customers on Monday
after Chinese regulators shut a local meat supplier following a TV
report that showed workers picking up meat from a factory floor, as
well as mixing meat beyond its expiration date with fresh meat. The
firms said they'll stop using the supplier.
The report, which focused on McDonald's and Yum, brings the pair
back into the firing line following the 2012 scandal that involved
chicken pumped with excessive amounts of antibiotics. It's unclear
whether the meat supplier, a local unit of U.S.-based food provider
OSI Group LLC, may have sold goods to other clients too.
Yum has just begun to bounce back from the 2012 scare in its No. 1
market, while McDonald's said on its China site it may now face a
product shortfall in its third-biggest market by store numbers. The
pair are the top two by sales in China's $174 billion fast food
market, according to Euromonitor, but face a challenge as local
firms try to tempt cost-conscious diners with healthy, homegrown
"I think this is going to be really challenging for both these
firms," said Benjamin Cavender, Shanghai-based principal at China
Market Research Group.
"I don't know that this is something an apology can fix so easily,
because at this point people don't have a whole lot of trust that
they have good systems in place," he added.
The Shanghai Municipal Food and Drug Administration shut Shanghai
Husi Food Co Ltd, a unit of Aurora, Illinois-based OSI, down on
Sunday after the local Chinese TV broadcast aired. As well as
footage of the meat safety violations, the program showed workers
saying that if clients knew what they were doing, the firm would
lose its contracts.
A China-based official of OSI said the firm was working with the
local government to investigate the matter, but declined to comment
further. OSI, which has close to 60 manufacturing facilities
worldwide and had revenue of over $5 billion in 2012, has been
supplying McDonald's in China since 1992 and Yum since 2008,
according to its website.
"If proven, the practices outlined in the reports are completely
unacceptable to McDonald's anywhere in the world," a China-based
spokeswoman for McDonald's told Reuters. She said the firm used a
"few protein suppliers" in China.
Yum officials in China did not respond to requests for further
SUPPLY CHAIN ISSUES
The topic was the fourth most popular topic on China's influential
Twitter-like Weibo social media platform on Monday, with most users
aiming their anger at McDonald's and Yum. Both said they were
investigating the matter, according to statements on their Weibo
sites on Monday.
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News of the scare had already spread to Shanghai diners negotiating
the city's lunch hour rush.
"For now I won't go to eat at
McDonald's or KFC, at least until this whole thing settles down,"
said Xu Xinyu, 24, a financial services worker, eating at a noodle
shop near a McDonald's outlet in downtown Shanghai.
Yet Chinese consumers may already have developed a comparatively
thick skin when it comes to food scandals. "Isn't everywhere like
this?" asked student Li Xiaoye, 20, eating a beef burger in a
Shanghai McDonald's outlet. "I'll keep going because wherever I eat,
the issues are all the same."
The incident highlights the difficulty in ensuring quality and
safety along the supply chain in China. Wal-Mart Stores Inc came
under the spotlight this year after a supplier's donkey meat product
was found to contain fox meat. It also came under fire for selling
expired duck meat in 2011.
OSI is one of McDonald's key meat suppliers and has a good
reputation, according to an industry insider speaking on condition
of anonymity. He added the incident highlighted the issue firms
faced enforcing strict processes with local staff.
As well as Yum and McDonald's, OSI listed Starbucks Corp, Japan's
Saizeriya Co Ltd, Papa John's International Inc, Burger King
Worldwide Inc and Doctor's Associates Inc's Subway brand as clients
in China, according to a 2012 press release.
A Starbucks spokesman told Reuters that the firm does not now have
any direct business dealings with Husi Food.
Burger King, Subway, Papa John's and Saizeriya did not immediately
respond to requests for comment.
(Additional reporting by Engen Tham and SHANGHAI newsroom; Editing
by Kazunori Takada and Kenneth Maxwell)
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