Yum! terminates global relationship with OSI

Yum! Brands Inc terminated its global relationship with US food provider OSI Group, whose Shanghai division was involved in a food safety scandal in China, following similar actions made by other food chain operators, a fresh move that analysts said Thursday will seriously hurt OSI.

An undercover television report on July 20 depicting improper food handling practices by supplier Shanghai Husi, a subsidiary of OSI, "has shaken consumer confidence, impacted brand usage, and disparaged the hard work of our over 400,000 Chinese employees," according to a statement that Yum! filed with the US Securities and Exchange Commission late Wednesday.

Although OSI was not a major supplier to Yum! Brands, the result of the event has been "a significant, negative impact to same-store sales at both KFC and Pizza Hut in China over the past 10 days," Yum! stressed.

McDonald's on Monday said it had halted cooperation with all affiliates of OSI's China branches since July 25, several days -after the television report said that Shanghai Husi had sold tainted products with reprocessed expired moldy meat.

Burger King also said in a statement on July 28 that "no product of ours is sourced from OSI's China branches from now on, and previously we only purchased very few materials from OSI in China."

The Shanghai Municipal Food and Drug Administration (SFDA) talked with OSI's managers in charge of the company's business in China Wednesday, and urged OSI to cooperate with the food supervisor on the investigation.

According to a statement issued by the SFDA on July 22, the expired meat products manufactured by Shanghai Husi were sold to well-known chains including McDonald's, KFC, Pizza Hut, Burger King, 7-Eleven and Dicos.

Calls to OSI's China branches went unanswered by press time.

Yan Qiang, a partner of Beijing-based Hejun Consulting, told the Global Times on Thursday that OSI faces "big trouble," especially at a time when Chinese consumers are paying more attention to food safety issues than before.

"I will not trust the foreign food chains, which always pledge quality-assured food," Li Lu, a 33-year-old engineer in Beijing told the Global Times Thursday.

Yum! said it was still too early to know how quickly sales will rebound in China and the full-year financial impact to Yum! Brands, but warned that if the significant sales impact is sustained, it will have a material effect on full-year earnings per share, according to the statement.

Some domestic meat suppliers will possibly gain more business opportunities as the restaurant chains are now looking for new business partners, according to Yan.

"If they [domestic meat suppliers] are committed to producing high-quality products, their business prospects are bright in China," he said.

Shandong Delicious Food Co, a meat products supplier, disclosed on Wednesday via an interactive platform launched by the Shenzhen Stock Exchange that "Delicious is cooperating with KFC, and will strive for deeper cooperation with it."