(Updates share price in sixth paragraph.)
July 28 (Bloomberg) -- McDonald’s Corp. pulled beef, pork and chicken items from its restaurants in China as a supplier recalled products made in the country, threatening to further damage Chinese consumers’ trust in fast-food chains’ safety.
The restaurant company’s China unit said in an e-mailed statement today that it is offering a “limited” menu in the country, and delivery dispatchers for McDonald’s in Beijing and Shanghai confirmed that fish burgers are the only sandwiches available.
The scare -- prompted by a recall at supplier OSI Group LLC, which is accused of repackaging old meat as new -- is fueling concerns that China has yet to ensure the safety of its food supply despite years of government investigations and penalties. The latest episode, involving a foreign-owned company, suggests the problems affect even suppliers previously thought reliable.
“This recall may spoil any remaining goodwill consumers have for fast-food restaurants,” said Michael B. Griffiths, a Shanghai-based qualitative research director at TNS China Co. “Food safety is right on the top of consumers’ agenda.”
McDonald’s is China’s second-largest fast-food chain by market share, trailing only Louisville, Kentucky-based Yum! Brands Inc., according to London-based research firm Euromonitor International Ltd. Yum, which has had its own food-safety mishaps in the Asian nation, gets about half of its revenue from China.
McDonald’s, based in Oak Brook, Illinois, fell 0.2 percent to $95.54 at 12:28 p.m. in New York. The shares had dropped 1.4 percent this year through July 25, the most recent trading day. The Standard & Poor’s 500 Restaurants Index gained 0.6 percent in that span.
Hong Kong McDonald’s have pulled from their menus Chicken McNuggets, the McSpicy chicken filet, fresh corn cups, iced lemon tea, green salad and grilled chicken salad because those involved ingredients from closely held OSI’s units in Guangzhou and Hebei, according to the restaurant’s website.
OSI, based in Aurora, Illinois, said it is folding its China operations into its global company after its investigation showed that its Shanghai Husi unit had failed to maintain standards.
“Our investigations have found issues that are absolutely inconsistent with our internal requirements,” David McDonald, OSI president, said at a briefing today in Shanghai. “Our China operations will now become a part of the OSI International umbrella.”
OSI withdrew all products manufactured by Shanghai Husi and replaced its management team in China, the company said yesterday in a statement on its website. The company had 55 facilities in 16 countries as of last year and was targeting capacity to process about 300 million chickens a year in China, according to its website.
“What happened at Husi Shanghai was completely unacceptable, and I hope that you will accept my personal and sincere apology,” Sheldon Lavin, OSI chief executive officer, said at the press briefing in Shanghai today. The company is referred to locally as Husi, the Mandarin pronunciation of OSI.
Initially, concern focused on Shanghai Husi meat following a July 20 report on local TV showing workers repackaging and selling chicken and beef past their sell-by dates. The recall has now spread to all products made by the Shanghai unit, including beef and pork.
Yum, which owns the KFC, Taco Bell and Pizza Hut chains, ended its relationship with OSI within days of the report and a government probe into the altering of expiration dates.
The restaurant company has been working for more than a year to reassure customers that its food is safe to eat after an outbreak of avian flu scared diners away from chicken and another supplier was found to be providing poultry with excessive levels of antibiotics. Yum’s same-store sales in China have gained in the past two quarters after five straight quarters of declines.
Yum has more than 6,300 restaurants, including East Dawning and Little Sheep, in China.
Chinese authorities have ordered Shanghai Husi’s plant shut for allegedly selling expired products. The local police detained five people in connection with an investigation into the meat supplier, the Shanghai Municipal Food and Drug Administration said last week.
The U.S.-based food processor said in a statement yesterday that it is recalling its Shanghai Husi products “to help rebuild the trust of our customers and consumers, as well as to cooperate with the official investigatory process.”
OSI said it had brought a new management team to lead its China unit, including some company executives with more than 20 years experience in the company. The company will rotate global experts to survey the operations and implement audit steps. The foodmaker also said it’s conducting an internal investigation into current and former senior management.
Shanghai’s party secretary Han Zheng, the city’s most senior leader, said authorities would be candid with the public about the investigation into Shanghai Husi. All companies that flouted the rules in Shanghai would be punished according to law, according to comments distributed by the local government, citing Han’s words at a briefing.
Shanghai Husi changed production dates of some meat pies, the Shanghai Municipal Food and Drug Administration said. Almost 70 percent of the re-packaged pies had been sold, with the rest confiscated by the agency, it said in a statement on its website.
OSI, which is based about 25 miles (40 kilometers) from McDonald’s headquarters in the Chicago suburbs, has previously apologized to its customers, calling the case an isolated incident.