It is not easy for US food companies to establish operations in China, as YUM and McDonalds found out. Both companies encountered issues two years ago when a chicken supplier was found to be using antibiotics. Both were sent reeling again as a meat provider was exposed for carrying out some unsanitary practices including "workers picking up meat from a factory floor, as well as mixing meat beyond its expiration date with fresh meat".
It is puzzling that the US companies catch such heat when it is the Chinese supply chains that cause them such issues. Granted, companies need to secure their supply chains to ensure that upstream suppliers are following strict controls, however, one would thing that these suppliers are also providing other Chinese based companies their supplies as well.
Reuters
http://www.reuters.com/article/2014/07/21/us-yum-brands-food-safety-idUSKBN0FQ01P20140721
Yum, McDonald's apologize as new China food scandal brews
By Adam Jourdan
SHANGHAI Mon Jul 21, 2014 5:55am EDT
Reuters) - McDonald's Corp and Yum Brands Inc are facing a new food safety scare in China, denting the fast food giants' efforts to shore up reputations and businesses that were hurt by a 2012 safety scandal in one of their biggest markets.
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 fare.
"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 comment.
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.
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)
ABC News
http://abcnews.go.com/International/wireStory/mcdonalds-kfc-china-face-food-scandal-24642880
McDonald's, KFC in China Face New Food Scandal
BEIJING — Jul 21, 2014, 7:58 AM ET
By JOE McDONALD AP Business Writer
McDonald's and KFC in China faced a new food safety scare Monday after a Shanghai television station reported a supplier sold them expired beef and chicken.
The companies said they immediately stopped using meat from the supplier, Husi Food Co., Ltd. The Shanghai office of China's food and drug agency said it was investigating and told customers to suspend use of the supplier's products.
Dragon TV said Sunday that Husi, owned by OSI Group of Aurora, Illinois, repackaged old beef and chicken and put new expiration dates on them. It said they were sold to McDonald's, KFC and Pizza Hut restaurants.
The report added to a series of food safety scares in China that have battered public confidence in dairies, fast food outlets and other suppliers.
McDonald's Corp. and Yum Brands Inc., which owns KFC, Pizza Hut and Taco Bell, said they were conducting their own investigations.
"Food safety is a top priority for McDonald's," the company said on its microblog account. The company said it pursues "strict compliance" with consumer safety laws and regulations and has "zero tolerance for illegal behavior."
A third company, sandwich shop chain Dicos, said in a statement that it stopped using sausage patties supplied by Husi. Dicos is owned by Taiwan's Ting Hsin International Group, and the company website said it had 2,000 outlets in China as of September 2013.
The Shanghai office of the State Food and Drug Administration said it was working with police to investigate Husi.
"At present, the company has been sealed and suspect products seized," the agency said on its website.
McDonald's sealed 4,500 cases of beef, pork, chicken and other products supplied by Husi for investigation and Pizza Hut sealed 500 cases of seasoned beef, the city government said in a statement.
A woman who answered the phone at Husi's headquarters said no one was available to comment. The official Xinhua News Agency cited a company manager, Yang Liqun, who said Husi has a strict quality control system and will cooperate in the investigation.
The Communist Party secretary of Shanghai, Han Zheng, called for "severe punishment" of any wrongdoing, according to the city government statement.
KFC is China's biggest restaurant chain, with more than 4,000 outlets and plans to open 700 more this year.
The company was badly hurt after state television reported in December 2013 that some poultry suppliers violated rules on drug use in chickens. Yum said KFC sales in China plunged 37 percent the following month. KFC launched an effort to tighten control over product quality and eliminated more than 1,000 small poultry producers from its supply network.
In a string of product scandals over the past decade, infants, hospital patients and others have been killed by phony or adulterated milk powder, drugs and other goods.
Foreign fast food brands are seen as more reliable than Chinese competitors, though local brands have made big improvements in quality.
The high profile of foreign brands means any complaints involving them attract attention, while their status as foreign companies with less political influence means Chinese media can publicize their troubles more freely.
Scandal-weary consumers on Monday expressed mixed feelings.
Chen Lu, 24, an employee of an Internet company, was eating a chicken burger and fries at a McDonald's in central Shanghai that was half-empty at midday, a time when most restaurants are crowded.
"My boyfriend called and told me not to eat McDonald's one minute after I ordered this chicken hamburger, but what can I do? I've already ordered and I am in a hurry," she said.
"I am worried about my health," she said. "I will try to avoid it, at least for a while. I am pretty disappointed in this brand."
Another diner, Liu Kun, a 24-year-old student from Nanjing who was visiting Shanghai, said he was not concerned.
"The incident won't change me eating here," Liu said. "There have been negative reports all the time. McDonald and KFC are the leaders in the industry."
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