McDonald's, Yum Suspend Meat Supplier in China

The U.S. owner of a meat supplier in Shanghai apologized and promised a swift response Monday after McDonald's Corp. and Yum Brands Inc. suspended purchases in China in the wake of allegations it sold expired chicken and beef to restaurants.

McDonald's and Yum, parent of KFC and Pizza Hut, said they halted orders from Shanghai Husi Food Co., owned by OSI Group Inc. of Aurora Ill., after local Chinese media reported that Shanghai Husi was selling meat products beyond their shelf life.

OSI, a longtime supplier to both fast-food companies, said its executives were "appalled" by the report and apologized to its customers and consumers. The company "has formed an investigation team, is fully cooperating with inspections being conducted by relevant, supervising government agencies, and is also conducting its own internal review," it said.

OSI said it thinks the media report showcased an "isolated event" but "takes full responsibility for the situation and will take appropriate actions swiftly." A spokeswoman declined to comment further.

Closely held OSI, which had $6.1 billion in sales last year and ranks among the largest U.S. meat processors, has been active in China since 1991 and currently operates in eight cities there, producing meat as well as produce. OSI began supplying McDonald's Chinese operations in 1992, and Yum in 2008, according to the meat processor's website.

China's official Xinhua News Agency said Monday that government officials suspended the operations of Shanghai Husi, whose officials in China didn't respond to requests for comment.

Food safety is a major concern in China, where food-borne illness and food adulteration are common occurrences and scandals over tainted food products have roiled the meat and dairy industries in recent years. Many consumers shop for import brands and foreign labels, which are believed to have higher standards of quality control.

McDonald's spokeswoman Heidi Barker said Monday that if the practices described in media reports were confirmed, they would be "completely unacceptable to McDonald's."

The company has switched to other suppliers, and was cooperating fully with authorities investigating the issue, Ms. Barker said. She added that a small percentage of McDonald's restaurants in China may have to stop selling a few items on their menus for a day or two while McDonald's obtains meat from other companies.

McDonald's, which has more than 2,000 outlets in China, has been trying to solidify its standing with Chinese consumers. The company faced tough times in the country last year, with sales at stores open 12 months or more down 3.6% compared with 2012.

The development could be a setback for Yum, which has just begun to recover from food-safety issues that had dogged the company for more than a year.

A Chinese media report in November 2012 alleged that two KFC chicken suppliers had been using growth hormones and excessive levels of antibiotics to help chickens grow faster. The claims, which quickly spread online, tapped into widespread consumer fears in China over food safety.

Government officials investigated, and recommended Yum strengthen its poultry supply-chain practices, which Yum said it had done. Still, Yum's sales in China struggled for much of last year, further hurt by a bird-flu outbreak last spring. The company has staged a recovery recently with new menu items and marketing campaigns. Last week, Yum reported that in the second quarter of this year, same-store sales in China rose 15%, driven by 21% growth at KFC. Sales in China account for more than half of Yum's revenue.

Yum said its decision to stop buying meat from Husi would cause temporary supply shortages for two breakfast products at some KFC restaurants and a beef product at Pizza Hut outlets. Yum said it "will not tolerate any violations of government laws and regulations from our suppliers."