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McDonald's Says China Expired Meat Scandal Will Dent Global Sales


McDonald's Says China Expired Meat Scandal Will Dent Global Sales

Photograph by Kin Cheung/AP Photo

McDonald’s (MCD) will gradually start selling beef and chicken burgers again in certain locations in China after an expired-meat scare took beef, pork, and chicken items out of restaurants in the country last week. The chain isn’t expecting a quick rebound, though.

In its quarterly filing to the Securities and Exchange Commission in the U.S., McDonald’s said that as a result of the China meat scandal, “the company’s global comparable sales forecast for 2014 is now at risk.” Originally the chain had expected full-year performance to be about the same as the first six months, when global same-store sales increased 0.2 percent. The company did not offer a revised outlook. Here’s an excerpt from its latest 10-Q.

McDonald's

The problem goes back to supplier OSI Group’s Shanghai Husi Food, which is accused by Chinese authorities of putting false sell-by dates on expired meat. The issue is denting McDonald’s sales in China, Japan, and other markets that, combined, represent about 10 percent of its consolidated revenue.

In tandem with other pressures, such as “expected currency volatility in Russia and Ukraine, and labor and other cost pressures, we expect continued pressure on company-operated margins for the remainder of the year,” McDonald’s said in its filing.

“Our menu offerings vary by location, and it’s not prudent to speculate on when the full menu will be offered in every restaurant,” said McDonald’s spokeswoman Becca Hary in an e-mail. The company said in a statement that it is increasing orders from existing suppliers to bring back the full menu eventually and has a “full due diligence inspection process” for potential new suppliers.

As KFC’s tenuous rebound in China following food safety concerns has shown, Chinese consumers are not quick to overlook such controversies. The Golden Arches said it will need to restore consumer confidence in its food quality in China as it continues to work on existing strategies around convenience, affordability, and menu variety.

Shanghai Husi Food also supplied ingredients to other restaurant companies in China, including Yum! Brands (YUM) and Papa John’s (PZZA). Yum and Burger King (BKW) have cut their ties with OSI, Bloomberg News reported. In an e-mail, spokeswoman Hary said that McDonald’s restaurants in “China and Hong Kong are no longer sourcing any products from companies owned by the OSI Group in China,” which is the parent company of Shanghai Husi.

Venessa-wong-190x190
Wong is an associate editor for Bloomberg Businessweek. Follow her on Twitter @venessawwong.

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