Allegations concerning the sale of expired meat by American-owned Shanghai Husi Food to the Chinese operations of McDonald’s, KFC and Pizza Hut have forced the fast food chains to suspend orders while the Shanghai Food and Drug Administration investigates.
An exposé over the weekend by the Chinese Dragon TV channel prompted the moves after it had claimed to witness Husi workers repackaging and selling chicken and beef that had exceeded its sell-by date.
According to the Xinhua, China’s official news agency, reporters who managed to enter Husi workshops said they saw clear evidence that stale beef and chicken were repackaged after processing to prolong their shelf life for a further year.
Fast food chains apologise
McDonald’s and Yum! Brands-owned KFC and Pizza Hut have each apologised to customers by issuing statements on the Weibo microblogging platform as the Shanghai food watchdog began its investigation.
"Food safety is the most important thing for McDonald's, and we always strictly abide by national laws and regulations and related standards to ensure consumers can enjoy our products at ease," McDonald's said in its statement.
For its part, Husi, which is owned by Illinois-based OSI Group, claims to have strict quality-control processes in place and has said it will co-operate fully with authorities.
OSI reported revenues of over US$5bn in 2012, with Husi supplying McDonald's in China since 1992 and Yum! since 2008, according to the company’s website.
Yum!’s China operation, the biggest in the country’s burgeoning fast food market with a 5% share last year, according to research agency Euromonitor, accounts for around half of the transnational’s global revenue.
However, alongside McDonald’s, its brands have faced fallout from high-profile supply-side scandals in recent years, most notably in 2012 when Shanghai authorities revealed that independent tests had found high levels of antibiotics in chicken supplied to Yum! and McDonald’s by Liuhe Group.
Yum! suffered a sharp drop in its profits following the last incident and has only recently managed to stabilise its balance sheet.
Analysts have been split over the potential impact of the Husi exposé on the fortunes of both chains, with Benjamin Cavender, Shanghai-based principal at China Market Research Group, telling Reuters that the situation will be challenging for both firms, and especially for Yum!.
"Yum had just started rebuilding credibility and had some decent sales news which just came out for the second quarter. I think this is going to really set them back," he said.
Learning from the past?
However, in a research paper quoted by Bloomberg, Mei He, Yaoxin Huang and Haiyan Guo of China International Capital, said the latest food-quality scandal would have “limited and transitory impact” on companies like KFC China.
“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,” the analysts claimed.
Whatever the financial impact on multinational corporations, the affair is bound to provoke a strong reaction among consumers who are already tired of having to face regular food safety scandals.
Food and drug safety was voted as the their third biggest concern this year, up from seventh place in 2013, according to an annual online poll of 3.3m respondents by the state-run People’s Daily in February.