More U.S. companies caught up in China food scandal

July 22, 2014

CBS News

The ongoing food scandal in China, affecting both Yum Brands’ (YUM) KFC and McDonald’s (MCD) restaurant chains, has spread outside of the People’s Republic, and to several other U.S. outlets.

On Tuesday Starbucks (SBUX) said some of its cafes in China had sold chicken products produced by Husi Food. The Shanghai-based company was closed down over the weekend, after a local TV exposé claimed Husi was using expired meats in its products.

“Starbucks will continue to apply on our rigorous quality assurance program to ensure that all our of products meet Starbucks global standards,” the company said in a statement, “as well as all local China safety and quality standards.”

Starbucks says it has removed the one product it has identified as coming from Husi from its affected outlets in China.

And Burger King (BKW), according to Reuters, has also removed Husi-processed meats from its operations in the People’s Republic.

At the same time, McDonald’s has reportedly halted the sale of McNuggets made with Husi-supplied chicken at over 1,300 outlets in Japan, one of the company’s biggest markets

Husi is a subsidiary of the Illinois-based OSI Group, which in a statement apologized to their customers and said they believed the current scandal to be “an isolated event.”

Scandals involving food quality and safety in China has been an ongoing issue for years. And according to Douglas Allen, director of the international MBA program at the University of Denver’s Daniels College of Business, both Chinese and international consumers have lost confidence in food produced by Chinese companies.

But as Allen notes, pointing to this current scandal, the problem also extends to multi-national companies.

In the case of this latest incident, he says, the OSI Group has a responsibility as the owner of the subsidiary involved, while the Chinese government has “oversight responsibility for inspection, to be sure (its regulations) are complied with.”

And a complicating factor, he says, is the overall Chinese economy — which is transitioning from a manufacturing to a service economy. Chinese officials, Allen says, are still learning how to successfully carry out food safety and quality enforcement; “how to eliminate corruption from the system and literally how to manage a system that’s about four times the size of the U.S., in terms of population.”

This is not to say all Chinese food production is low-quality. “I’ve talked to U.S. companies,” Allen said, “who say the highest-quality food processing operations they have in the world are in China, as well.”

The main issue, for McDonald’s, KFC, Starbucks and other U.S. companies with operations in China, is the strengthening of what Allen calls “accountability mechanisms” at Chinese production sites.

“Increase consumer confidence by increasing the quality,” he said. “But you do that partly by embedding a culture of quality in the plant itself, so that it’s unthinkable that a (food processing) worker would pick stuff up off the floor.”