On July 20 a Chinese television report showed workers at Shanghai Husi Food Co partaking in some unsavory practices such as reusing meat that had fallen on the floor and mixing expired meats with fresh. Shanghai Husi, a division of OSI, provided meat to KFC and McDonald’s locations in the country. As a result, the news sent shock waves through the country.
On Wednesday Yum! Brands — KFC’s parent company — revealed that the fall out had a “significant, negative impact” on same store sales at KFC and Pizza Hut locations in China.
In a SEC filing the American fast food company pointed out that it has cut ties with OSI since the news broke. Although OSI was “not a major supplier to Yum! Brands,” read the filing, “these events triggered extensive news coverage in China that has shaken consumer confidence.” The Shanghai FDA has launched an investigation of OSI and Yum! said it will consider taking legal action once the investigation is complete.
“At this point, it is too early to know how quickly sales will rebound in China and the corresponding full-year financial impact to Yum! Brands,” read the SEC filing, “However, if the significant sales impact is sustained, it will have a material effect on full-year earnings per share.”
Yum! shares were down about 6% in Thursday morning trading falling as low as $68.20 and more than 11% since July 20. McDonald’s shares were down less than a percent on Thursday and about 4% since the television report. The larger American chain has not revealed what impact the scandal is having on short-term sales, but Yum! is much more reliant on Chinese sales that McDonald’s is.
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