Financial News

  • 1 August 2014, 6:39

Fast Food Slump Over China Meat Scandals

US fast food firms are feeling the heat in China, amid a meat contamination scare that has stretched customer loyalty.

KFC, Pizza Hut and McDonald's have all become embroiled in the scandal because of safety issues surrounding local sourcing of beef and chicken.

Yum! Brands said the scandal has caused it "significant, negative" sales at its chains, KFC and Pizza Hut, over the past two weeks.

Shares in Yum!, which counts China as its premier market, tumbled more than 6% in early Thursday trading on the New York Stock Exchange.

A television report in early July triggered the concern after showing improper meat handling by one of its suppliers, Shanghai Husi Foods.

In a US regulatory filing on Wednesday, Yum! said: "If the significant sales impact is sustained, it will have a material effect on full-year earnings per share."

Its stock has tumbled more than 12% since it posted second-quarter results on July 17.

McDonald's in China and Hong Kong did not respond to requests for information on the impact on sales from the scandal.

However, McDonald's in Japan scrapped its full-year result forecast on Tuesday, amid a switch to alternative chicken supplies.

One of its Japan executive told Reuters daily sales had dropped by almost 20% due to the scare.

Both McDonald's and Yum! have looked to China - where the rising middle class sees foreign brands as offering better food quality - for long-term growth.

At the end of 2013 Yum! operated 4,563 KFCs, 1,264 Pizza Huts and 389 Little Sheep eateries in the world's most populous country.

It opened a new outlet nearly every day during 2013.

Safe supply chains have become an increasingly important issue for the companies, which insist on high hygiene standards.

Richard Brubaker, an adjunct professor at the China Europe International Business School and founder of the Collective Responsibility consultancy, said: "For Yum, this is a problem because it has a history of problems in China.

"For McDonald's, it's the sheer size of the problem and the inability to get product."

McDonald's, which has more than 2,000 restaurants in China, has had a long relationship with OSI Group - the US parent of Shanghai Husi Food - and was more dependent on the supplier than Yum!.

Many McDonald's China outlets have been hit by meat shortages since the company ended its relationship with OSI there.

"For people like us, McDonald's and KFC are places to meet friends," Shanghai student Yao Nanfang,16, said.

"We'll still go to McDonald's, but we'll order fewer meat products."

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