McDonald's faces shortages at some China outlets

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McDonald's Corp. MCD +0.06% is facing a shortage of products in some outlets across northern and central China as a result of a shift away from a Shanghai supplier that allegedly sold expired meat to some fast-food chains in the country.

McDonald's outlets in Beijing and Shanghai don't have hamburgers or chicken and the restaurants are encouraging customers to purchase fish sandwiches.

U.S.-based OSI Group Inc., whose subsidiary Shanghai Husi Food Co., has been accused by Chinese authorities of intentionally selling meat beyond its shelf life to restaurant companies, on Monday said it is assigning new managers to its China business. The team of OSI managers will focus on quality assurance, compliance and auditing at the China operations.

David McDonald, president of OSI, said the Aurora, Ill., company is investigating current and former staffers and while it doesn't yet know who might be responsible for alleged misconduct at Shanghai Husi, the company will act "quickly and comprehensively" once it finds out.

At a news conference Monday in Shanghai, Sheldon Lavin, chairman, chief executive and owner of OSI, said, "We know we have let down our customers, the government and the public of China."

OSI said Saturday it pulled all Shanghai Husi products from the market.

McDonald's cut its orders from Shanghai Husi last week, although the fast-food chain said it would order products from OSI's other factories in the country. It isn't clear how long the shortage will affect McDonald's in China or how it will affect sales in one of the company's key growth markets.

One outlet in Shanghai is now running low on fish, a store representative said. "McDonald's China is moving to increase product supply from other existing suppliers in China," a spokesman said.

KFC parent Yum Brands Inc., YUM +0.16% has said it would no longer buy any products from OSI in China, the U.S. or Australia.

Burger King Worldwide Inc. BKW +0.34% on Monday said it also would stop buying meat from OSI in China.

"We launched a full investigation into this matter and, as a precaution, have decided that we will no longer source any products from Husi or any of its related entities throughout China," a Burger King spokeswoman said. Burger King said its decision may result in a temporary suspension of some menu items. The Husi locations in China don't supply any Burger King restaurants outside of China.

No consumers have reported illnesses tied to the meat problems, the food outlets affected have said.

Some McDonald's diners were disappointed by the limited menu. Zhou Tingting settled for some fries and a banana pie, though she really wanted a hamburger, the 23-year-old student said. "A hamburger restaurant that doesn't have hamburgers; it's pretty funny," said Ms. Zhou. Ms. Zhou said that she's aware of the Shanghai Husi problem but isn't concerned. "McDonald's is still convenient and pretty good," she said.

Ye Chen, a 24-year-old from Beijing, sat with a friend, sipping drinks. "It's just a good thing we'd already eaten," Mr. Ye said.

Shanghai Husi also supplied lettuce, eggs and corn to McDonald's outlets in China.

A McDonald's spokeswoman said she didn't have information on how many of the company's 2,000-plus stores in China are affected. She declined to comment on sales. The company doesn't publicly disclose separate China sales figures.

McDonald's business in Japan has also been affected. McDonald's Holdings Co. Japan Ltd. said Friday it would cut all orders of chicken products from China for its Japanese outlets, saying Shanghai Husi's products made it to 10% of the company's stores in Japan.

Source: Wall Street Journal


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