Impacts of China safety scandal far-reaching

Serious safety violations, revealed by a local television investigation, have rocked the foreign brand-led fast-food market in China and Japan, only just recovering from a separate scare in 2012

In the two weeks passed since the scandal first hit, repercussions have included a shortage of meat products in fast-food chains, a full apology from the US based chairman of a major distributor and, most recently a warning about the “significant deterioration” in sales from Yum, a major operator.

At the root of the scandal is a dull, grainy and shaky hidden camera video. Shot for an investigation by local television station Dragon TV, the video clearly shows workers throwing meat from the floor back into processing machines.

The distributer, a Shanghai based subsidiary of the Illinois based OSI Group, provided meat to Western food brands across China and Japan. Including, Papa John’s Pizza, KFC, Domino’s, Starbucks and McDonald’s.

The Financial Times reported on Thursday that Yum, the US based operator of KFC, Pizza Hut and Taco Bell said the scandal had a “significant negative impact to same-store sales at both KFC and Pizza Hut in China over the past 10 days.”

Yum, which said it no longer purchases from Shanghai Husi, warned in a statement, “If the significant sales impact is sustained, it will have a material effect on full-year earnings per share.”

Chinese officials detained five employees of Husi Shanghai, amid allegations that the violations were “systematic”.

Ellie Clayton


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