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McDonald's Meat Supplier Overhauls China Operations

  • Reuters

McDonald's Hong Kong restaurants have taken chicken nuggets and chicken filet burgers off the menu following accusations of selling expired meat. A menu as of July 25, 2014.

McDonald's Hong Kong restaurants have taken chicken nuggets and chicken filet burgers off the menu following accusations of selling expired meat. A menu as of July 25, 2014.

A leading U.S. meat supplier said a Chinese unit at the center of a food safety scandal had issues that were “absolutely inconsistent” with the group's high standards.

“This is my company and events like these have a personal toll. ... They simply don't represent the values I stand for or those of my company,” Sheldon Lavin, the millionaire chairman, CEO and owner of Illinois-based OSI Group LLC, said at a news conference Monday in Shanghai.

OSI said it was suspending operations at Shanghai Husi Food and would review all its China plants in an effort to limit further damage after losing two major customers.

KFC and Pizza Hut parent Yum Brands Inc. last week severed its ties with OSI, while the Japan and Hong Kong units of McDonald's Corp. said they were ending their relationship with the U.S. meat processor's Chinese unit following allegations it mixed expired meat with fresh produce.

Customers eat at a McDonald's restaurant in Hong Kong on July 25, 2014.

Customers eat at a McDonald's restaurant in Hong Kong on July 25, 2014.

David McDonald, OSI's president and chief operating officer, said the group was making senior management changes in China and will set up a quality control center in Shanghai to better supervise its business. It also will bring in global experts to survey the China operations and improve auditing, including constant visual surveillance and extensive employee interviews.

In addition, it plans to spend 10 million yuan ($1.62 million) on a food safety education program in Shanghai.

McDonald's headquarters to take control

OSI, which ranks among the top few dozen U.S. private companies with annual revenue of close to $6 billion, said its China operations had a certain amount of autonomy. The group wanted a decentralized business model that allowed decisions to be made locally, although global standards were not meant to be broken. McDonald's said the China operations would come under the direct control of headquarters.

Shanghai Husi Food was accused earlier this month by a TV documentary of mixing expired meat with fresh product and forging production dates. Regulators in Shanghai said Husi had forged the dates on smoked beef patties and then sold them after they expired. Police have detained five people as part of their investigation. There have been no reports of any consumers falling sick.

“To date, we've found issues that are absolutely inconsistent with our internal requirements for the highest standards, processes and policies,” McDonald told a packed news conference at a Shanghai hotel, adding that all nine OSI food processing plants in China would be reviewed.

China is McDonald's third biggest market by outlets and Yum's largest, representing a big growth opportunity for foreign fast-food chains. But a series of damaging food safety scandals in recent years risks denting those prospects as many Chinese look to foreign restaurants for better quality.

Meat dishes off menu

McDonald's, which has more than 2,000 outlets in mainland China, took more meat dishes off its menus Monday as it sought to fill the supply gap after OSI withdrew all Shanghai Husi products from the market at the weekend.

At least three McDonald's outlets in Shanghai and Beijing, visited by Reuters reporters on Monday, had stopped selling all or most of their meat products. Outlets in cities such as Tianjin and Wuhan were also affected, according to microblog postings.

A spokeswoman at McDonald's in China said its beef, chicken and pork products were affected at outlets across the country, though the level of impact varied.

In an emailed statement, McDonald's said it had withdrawn all products from the Husi group in China since Friday. “As a result, we are now only offering a limited menu in our restaurants around the country.”

“We are leveraging our network of suppliers to resume our full menu offerings. Some restaurants will resume offering full menu in early August and some may take a little longer. We apologize to our customers for causing them such concern and inconvenience,” it added.

'Won't accept their apologies'

“I wanted to order chicken products today,” said Tan Qiang, 23, at one McDonald's outlet in central Shanghai. “But they only had one type of combo and nothing else. I was disappointed not being able to eat what I want.”

Outside another nearby McDonald's, an 18-year-old student who only gave her surname as Li, said: “For big companies like McDonald's, they should feel sorry for what they did to customers. I won't accept their apologies.”

Food safety is a big issue for Chinese consumers after dairy products tainted with the industrial chemical melamine led to the deaths of six infants in 2008 and left many thousands sick.

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