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Yum Brands China
Success in China made Yum! Brands, the parent company of Pizza Hut, one hedge fund manager's top pick at this year's Sohn Conference. Courtesy of Pizza Hut

McDonald’s, Yum Brands hit by new food safety scare in China

Jul 21, 2014

McDonald's Corp (mcd) and Yum Brands Inc (yum) are embroiled in a new scandal over food safety in China after one of its suppliers came under investigation for allegedly selling expired beef and chicken.

The episode threatens to throw a wrench in the pair's efforts to get over a similar scandal in 2012, when they were accused of selling chicken products with excessive amounts of antibiotics.

Yum is the parent of KFC, Pizza Hut and Taco Bell and is the biggest operator of fast-food restaurants in China, having first opened KFC there in 1987, while McDonald's has recently been lost second place, in terms of stores, to Taiwan-based Dicos.

Yum had said only last week that like-for-like sales in China had risen 15% in the second quarter, and that KFC sales had risen 21%, a badly-needed boost in view of falling sales in the U.S. at KFC and Pizza Hut.

Reuters reported that local regulators had shut Shanghai Husi Food Co Ltd, a unit of Aurora, Illinois-based OSI, on Sunday after the local Chinese TV broadcast aired an incriminating documentary program. As well as footage of meat safety violations, the program showed workers saying that if clients knew what they were doing, the firm would lose its contracts, Reuters said.

Both companies moved to distance themselves from the supplier in question at the weekend, saying they had stopped doing business with Shanghai Husi, which is owned by Illinois-based OSI Group, and apologising to customers.

The two U.S. companies are coming under increasing pressure from local competition offering more traditional Asian products, having learned to emulate western practice in supply chains, branding and customer service. Among other things, McDonald's has responded by giving a more Asian feel to the look of its new restaurants.

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