McDonald’s Japan Pulls Profit Goal on China Food Scandal

McDonald’s Corp. (MCD)’s Japan business withdrew its forecast for the first profit increase since 2011 after suspending sales of chicken nuggets supplied by a company that acknowledged food safety problems at its Shanghai plant.

“We are losing 15 percent to 20 percent of our daily sales projection” after halting sales of chicken nuggets processed at the Shanghai unit of Aurora, Illinois-based OSI Group Inc., Row Imamura, vice president of the Tokyo-based chain, said at a press conference yesterday. “It is highly difficult for us to achieve our earnings forecast.”

McDonald’s Holdings Co. Japan Ltd. will strengthen inspections of suppliers, halt all chicken imports from companies in China and switch to sources in Thailand, it said in a statement yesterday. Closely held OSI Group said it was replacing its China management after a local television report on July 20 showed workers at its Shanghai Husi Food Co. unit giving expired chicken and beef sell-by dates of another year.

The meat processor’s practices are “unacceptable,” and “disturbing,” McDonald’s Japan Chief Executive Officer Sarah Casanova said at a press conference yesterday.

The burger chain dropped 2.8 percent to close at 2,691 yen in Tokyo trading. The shares have gained 0.2 percent this year, compared with a 0.8 percent decline in the Topix index.

Photographer: Tomohiro Ohsumi/Bloomberg

Sarah Casanova, chief executive officer of McDonald's Holdings Co. Japan Ltd., adjusts her glasses during a news conference in Tokyo on July 29, 2014. Close

Sarah Casanova, chief executive officer of McDonald's Holdings Co. Japan Ltd., adjusts... Read More

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Photographer: Tomohiro Ohsumi/Bloomberg

Sarah Casanova, chief executive officer of McDonald's Holdings Co. Japan Ltd., adjusts her glasses during a news conference in Tokyo on July 29, 2014.

Profit Outlook

McDonald’s Japan, facing rising competition from convenience stores and coffee shops, also yesterday reported profit that slumped 78 percent in the second quarter. Sales dropped 8 percent. The figures were derived from first-half results reported yesterday by the company.

The chain had previously forecast a 17 percent gain in 2014 net income to 6 billion yen ($58.8 million). Sales were forecast to fall 4 percent to 250 billion yen, the lowest since at least 2002 and a sixth straight year of decline.

“The negative impact on sales and consumer confidence resulting from this incident, combined with the resulting lost margins and future investments required rebuild sales and to restore the trust of our customers will result in McDonald’s Japan (2702) failing to meet earnings targets for 2014,” the company said in a statement yesterday.

McDonald’s in China pulled beef, pork and chicken items from its restaurants as OSI recalled products made in the country. The meat processor withdrew all products manufactured by Shanghai Husi, OSI said. The company had 55 facilities in 16 countries as of last year and was targeting capacity to process about 300 million chickens a year in China, according to its website.

Meat from Shanghai Husi accounted for about 20 percent of the chicken nuggets McDonald’s sold in Japan, the company said.

The burger chain’s Japan stores today started offering Tofu Shinjo Nuggets, a combination of soybean curd, fish paste and vegetables under a menu addition planned before the Shanghai Husi scandal.

To contact the reporter on this story: Yuki Yamaguchi in Tokyo at yyamaguchi10@bloomberg.net

To contact the editors responsible for this story: Stephanie Wong at swong139@bloomberg.net Dave McCombs

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