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McDonald’s Steps Up Spot Checks to Win Back China Diners

People walk past a McDonald's Corp. restaurant in the pedestrianized Dongmen area of Shenzhen, China. Photographer: Brent Lewin/Bloomberg
People walk past a McDonald's Corp. restaurant in the pedestrianized Dongmen area of Shenzhen, China. Photographer: Brent Lewin/Bloomberg

Sept. 3 (Bloomberg) -- McDonald’s Corp. appointed a China food safety chief and is stepping up unannounced audits of suppliers after an expired meat scandal led it and other restaurant chains to pull products.

The newly created position has authority to veto food sourcing or production decisions upon any concerns, McDonald’s China said yesterday. It has also set up an anonymous hot-line for food suppliers and employees, raised frequency of third-party audits, and is requiring suppliers to install more cameras to monitor production facilities.

“McDonald’s expects all staff and suppliers to carry out these added measures to enhance their food safety and quality systems,” the China unit of Oak Brook, Illinois-based McDonald’s said in an e-mailed statement. “We have zero tolerance to non-compliance.”

The maker of Big Mac and KFC-owner Yum! Brands Inc were among companies sourcing meat and vegetables from Aurora, Illinois-based OSI Group LLC’s China unit, now under investigation for repackaging expired chicken and beef to sell. Yum has terminated its relationship with OSI globally, while McDonald’s suspended OSI as its supplier in China, without cutting their global ties.

McDonald’s China has stopped using Shanghai Husi entirely and replaced products sourced from OSI China with other suppliers, it said. Chinese authorities started to investigate OSI’s Shanghai Husi unit in July after a local television station filmed employees adding another year to original sell-by dates of meat products and repacking them.

New Suppliers

Last month, OSI said six Shanghai Husi employees were arrested in relation to the investigation. The supplier yesterday signed an agreement with KanPak China, a subsidiary of California’s Golden State Foods Corp, to manage its Guangzhou vegetables and fruit-producing factory.

McDonald’s China now has five existing meat suppliers ramping up production to meet its needs, namely McKey Food Services Ltd., Cargill Inc, Hormel Foods Corp., Trident Seafoods Corp., and Fujian Sunner Development Co. It also confirmed Creative Food Group Holdings as a new supplier for produce, and in the process of qualifying Golden State Foods as its new produce supplier.

Some of its restaurants will resume produce supply from early September, with full supply restarting across China from the third week of the month, the company said, adding it’s taken a longer time as new suppliers and their facilities have to go through due diligence processes.

Sales Plunge

The OSI scandal caused shortages of ingredients from beef patties to vegetables in McDonald’s eateries in China and chicken nuggets in Japan, hurting results in the two biggest Asian economies. McDonald’s July same-store sales plunged 7.3 percent in Asia Pacific, the Middle East, and Africa, a bigger fall than analysts estimated.

More than 7 percentage points of the decline was due to the supplier issue, McDonald’s said in a statement on Aug. 8. The affected markets, including China and Japan, make up about 10 percent of consolidated revenue, the fast-food chain said.

The company had completed third-party food safety audits on all of its meat and produce suppliers over the past six weeks, and is now in the process of the audits for the rest of its food suppliers, McDonald’s China said.

McDonald’s new China food safety role, created on Sept. 1 and reporting directly to the country chief executive officer, will be filled in the interim by Cindy Jiang, its former senior director of Global Food Safety, Quality, and Nutrition, it said.

To contact Bloomberg News staff for this story: Liza Lin in Shanghai at llin15@bloomberg.net

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

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