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Yum Terminates Relationship With Supplier After Government Probe

Yum! Brands Inc. (YUM)’s China division, the largest fast-food business in the Asian nation, terminated its relationship with meat supplier OSI China after a government probe into the altering of expiration dates.

Five people at OSI’s Shanghai Husi Food Co. have been detained in the preliminary investigation, leading Yum to cease all procurement from the company, according to an e-mailed statement from the owner of KFC and Pizza Hut.

“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 in the statement. “Yum China unequivocally condemns these actions.”

Earlier this week, Chinese authorities ordered nationwide spot checks of restaurants that sourced meat from Shanghai Husi, a unit of Aurora, Illinois-based OSI Group LLC. The government shut down operations at Shanghai Husi following a July 20 report by the local Dragon TV channel on workers repackaging and selling chicken and beef past their sell-by dates. The probe affected chains such as McDonald’s Corp. (MCD), KFC, Pizza Hut, Papa John’s International Inc. (PZZA) and Burger King Worldwide Inc. (BKW)

“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.

OSI Group has apologized to its customers, calling the case an “isolated event” in a statement on its website.

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 Stephen West

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