(Paul Ausick) Update: The Illinois-based firm, privately held OSI Group Inc., that supplied the questionable meat products to McDonald’s Corp. (NYSE: MCD) and KFC restaurants owned by Yum! Brands Inc. (NYSE: YUM) has been suspended from supplying further products to the two fast-food giants. For its part, OSI said it is “appalled” by the Chinese report. Like McDonald’s and KFC, OSI has apologized to its customers and said it takes full responsibility for the situation while promising swift action to fix it. KFC and McDonald’s have found other sources of supply, according to a report.
Chinese regulators have closed down a local meat supplier following a TV report that the company was mixing meat that had passed its expiration date with fresh meat and using other unsanitary practices. The supplier provided meat to both McDonald’s Corp. (NYSE: MCD) and Yum! Brands Inc.’s (NYSE: YUM) KFC restaurants. The two firms have issued an apology and said that they will stop using the supplier.
Oh, if it were that easy. In early 2012, both McDonald’s and Yum were hit with a similar scandal in which suppliers were providing chicken pumped full of excess antibiotics. The scandal hammered Yum’s revenues in China, the company’s largest market, cutting revenue growth in the Middle Kingdom from 35% year-over-year in 2011 to 25% in 2012 and -1% in 2013.
McDonald’s may depend less on China for total revenue, but revenue growth slipped from 6% year-over-year in 2012 to just 1% in 2013. Total revenue growth for the company in both years was 2% in local currency. In its annual report for last year, McDonald’s acknowledges that expansion in China was a primary reason for growth in the company’s APMEA division.
Earlier this year Wal-Mart Stores Inc. (NYSE: WMT) was hit by a report that a supplier was mixing fox meat with donkey meat, and in 2011 some Walmart stores were closed by the government for mislabeling some pork products.
If the past is any guide, KFC and McDonald’s are in for some tough times, and neither is likely to get by with just an apology.
Shares of Yum traded down about 3.8% Monday, at $74.52 in a 52-week range of $64.08 to $83.58.
McDonald’s shares were down about 1%, at $97.99 in a 52-week range of $92.22 to $103.78.