McDonald’s Sticks by Meat Supplier OSI After Yum Severs Ties

Source: AFP/Getty Images

Workers sort food nuggets at the Shanghai Husi Food Co. factory in Shanghai on July 20, 2014. Close

Workers sort food nuggets at the Shanghai Husi Food Co. factory in Shanghai on July 20, 2014.

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Source: AFP/Getty Images

Workers sort food nuggets at the Shanghai Husi Food Co. factory in Shanghai on July 20, 2014.

McDonald’s Corp. (MCD) is sticking by meat supplier OSI Group LLC following a health scare in China, even as fast-food rival Yum! Brands Inc. (YUM) terminates its relationship with the producer of chicken, pork and beef.

After Chinese authorities shut down OSI’s Shanghai Husi Food plant this week for allegedly selling expired products, McDonald’s said it will continue using the Husi division’s other operations in the country. While McDonald’s transitions to a “state-of-the-art facility” in Henan, it plans to rely on Husi’s Hebei plant.

“We and our suppliers have a decades-long proven track record of providing safe, quality food to our customers worldwide,” the Oak Brook, Illinois-based chain said in a statement. “Husi is taking swift action by investigating what happened and overhauling its safety procedures. We have been in direct contact with OSI’s global leaders; as an added assurance of uncompromised safety, they are sending their top food safety experts to China to provide expertise on operations.”

The move contrasts with the reaction of Yum, the largest fast-food business in China. That company, which owns Pizza Hut, KFC and Taco Bell, terminated its relationship with OSI after a government probe into the altering of expiration dates. Shanghai police have detained five people in connection with an investigation of the meat supplier, the official Xinhua News Agency reported this week.

Photographer: Brent Lewin/Bloomberg

McDonald’s appointed a China food safety chief and is stepping up unannounced audits ofsuppliers after an expired meat scandal led it and otherrestaurant chains to pull products. Close

McDonald’s appointed a China food safety chief and is stepping up unannounced audits... Read More

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Photographer: Brent Lewin/Bloomberg

McDonald’s appointed a China food safety chief and is stepping up unannounced audits ofsuppliers after an expired meat scandal led it and otherrestaurant chains to pull products.

Starbucks Decision

Starbucks Corp. (SBUX) also is cutting ties with Husi after it had to pull chicken-apple panini sandwiches from stores in some Chinese markets, including Henan, Yunnan, Jiangxi and Guizhou. The coffee seller is working with all its suppliers to determine if there are any other connections to OSI.

“We are not working with Husi in China and will not going forward,” the Seattle-based company said in an e-mailed statement. Starbucks also said it will make sure “that our direct suppliers in China do not source any products from any Husi affiliate in China going forward.”

Shanghai’s Food and Drug Administration sealed off 100 tons of products from customers of Shanghai Husi, Xinhua reported. Checks on the company also showed expired meat was involved in the production of more than 5,100 boxes of nuggets, meat patties and small beef steaks in June, according to the news report.

The scandal has prompted Yum to cease all procurement from Aurora, Illinois-based OSI, according to an e-mailed statement.

‘Completely Unacceptable’

“It is difficult to believe and completely unacceptable that the management of Shanghai Husi, a division of OSI, would oversee and organize illegal and dishonest operations,” the fast-food company said. “Yum China unequivocally condemns these actions.”

Earlier this week, Chinese authorities ordered nationwide spot checks of restaurants that sourced meat from Shanghai Husi. The local Dragon TV channel spurred the investigation when it reported on July 20 that workers repackaged and sold chicken and beef past their sell-by dates. In addition to McDonald’s, KFC and Pizza Hut, restaurant chains such as Papa John’s International Inc. (PZZA) and Burger King Worldwide Inc. (BKW) were affected.

Still, Yum said it wasn’t relying heavily on Shanghai Husi before the incident.

“This supplier is not a major supplier of Yum China,” Louisville, Kentucky-based Yum said in its statement. “KFC and Pizza Hut have arranged alternative suppliers and we do not anticipate disruption to KFC restaurants.”

Shortages of certain products at Pizza Huts will only last a short while, the company said. Yum said it reserves the right to take legal action against OSI based on the final results of the government’s investigation.

Japanese Suspension

Japan also suspended food imports from the supplier and will strengthen safety checks on food entering the country, Chief Cabinet Secretary Yoshihide Suga said yesterday.

Six years ago, at least nine people in Japan fell ill after eating poisoned dumplings imported from a food factory in China’s Hebei province, causing a nationwide health scare in Japan and straining relations between the two neighbors. A former worker at the factory was sentenced to life in prison after pleading guilty to doctoring the products.

OSI, which is based about 25 miles (40 kilometers) from McDonald’s headquarters in the Chicago suburbs, has apologized to its customers, calling the case an isolated incident.

Yum said it also plans to stop using OSI in Australia and the U.S., where it had supplied “a few items” to Pizza Hut and Taco Bell. McDonald’s, meanwhile, buys chicken, pork, beef and lettuce from OSI in the Shanghai area, Heidi Barker, a company spokeswoman, said in an e-mail. The affected products were sold to McDonald’s locations in China and Japan, not the U.S. or other countries.

McDonald’s Chief Executive Officer Don Thompson said earlier this week that the company would deal with the incident “swiftly and appropriately.”

“We do have audits of our suppliers,” he said on an earnings conference call. “In this case, we do feel that we were a bit deceived relative to one of these plants, so we’re clearly looking at that.”

To contact the reporter on this story: Leslie Patton in Chicago at lpatton5@bloomberg.net

To contact the editors responsible for this story: Nick Turner at nturner7@bloomberg.net; Stephanie Wong at swong139@bloomberg.net Stephen West

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