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McDonald’s, Yum Halt Buying From Chinese Meat Supplier

Chicken

McDonald’s Corp. (MCD) and Yum! Brands Inc. (YUM) halted buying meat products from a Shanghai supplier while authorities investigate allegations that the company sold chicken and beef past its expiration date.

McDonald’s asked all its outlets to stop using products from Shanghai Husi Food Co., according to statements on the companies’ official Chinese microblog yesterday. Yum! Brands’ KFC and Pizza Hut restaurants did the same, Yum said in a separate microblog statement. Both restaurant chains said the move would result in shortages of some menu items and apologized to consumers for the inconvenience.

Shanghai authorities suspended operations at Shanghai Husi on the same day the local Dragon TV channel reported that Husi workers were repackaging and selling chicken and beef that had exceeded its sell-by date. The allegations renew concerns about unsafe food in China following abuses that have included lacing baby formula with melamine, a compound used in plastics, and fox DNA found in donkey meat.

This is the second time in less than two years the two fast-food chains have been hit by a food safety issue involving Chinese suppliers. In December 2012, Shanghai authorities said that tests conducted from 2010 to 2011 by a third-party agency found high antibiotics levels in eight batches of chicken supplied to Yum by Liuhe Group Co. The company also supplied McDonald’s in China at the time.

“This latest food-quality scandal will have a limited and transitory impact on KFC China,” analysts Mei He, Yaoxin Huang and Haiyan Guo of China International Capital Corp. Ltd. said in a research report today. “Local management have learned painful lessons from 2012’s ’instant chicken’ scare will take immediate and forceful measures to contain any adverse publicity and close the loopholes in any quality-assurance procedures.”

Overdue Chicken

Shanghai Husi, owned by the Aurora, Illinois-based OSI Group, has a strict quality-control system and will cooperate with the investigation, said Yang Liqun, general manager for deep processing with OSI China, according to China’s official Xinhua News Agency. Two calls to the supplier’s main line by Bloomberg News weren’t answered.

Municipal food-and-drug authorities asked all companies sourcing from Shanghai Husi to remove its products from sale, according to the regulator. McDonald’s and Yum said they are investigating Shanghai Husi.

Dragon TV said reporters who entered Shanghai Husi factories saw evidence that past-due chicken and beef were repackaged and given a shelf life of another year.

Fox DNA

Since 2012, Yum, which gets about half of its revenue from China, has revamped its menu and offered deals to woo back diners. Yum is China’s biggest fast-food chain by market share with 5 percent last year, according to London-based researcher Euromonitor International Ltd. The Oak Brook, Illinois-based McDonald’s is second-largest, with 2.6 percent of the market.

Foreign and domestic companies operating in China have been hurt by shoddy food suppliers in the past. Wal-Mart, the world’s largest retailer, promised to boost inspections of suppliers this year after authorities said that donkey meat sold at its Chinese stores contained fox DNA.

Melamine Scare

In 2008, at least six babies died after about 22 companies were found to have sold dairy products containing melamine, a toxic chemical that can make diluted milk appear to have a higher protein content.

Food and drug safety was voted as the third biggest concern for ordinary Chinese this year, up from seventh place in 2013, according to an annual online poll of 3.3 million people by the state-run People’s Daily in February.

China is seeking to strengthen food safety in the country by increasing penalties for violations, more food-safety information scrutiny and by raising compensation for consumers in a new draft law. The country is also tightening oversight of the infant formula industry.

(Source: Bloomberg)