Another Food Safety Scandal Shakes Yum! Brands, Inc. (YUM) and McDonald’s Corporation (MCD) In China

Two years from the last Chinese food safety scandal that hit Yum! Brands, Inc. (NYSE:YUM) and McDonald’s Corporation (NYSE:MCD), the two companies find themselves surrounded by another scandal, once again. The two companies came under fire after an investigative report from the Chinese State TV highlighted that both the food joints are taking supplies from Shanghai Husi Food, a unit of OSI Group, which is operating in an unhealthy environment. CNBC disclosed the details from a published report in which an undercover reporter mentioned that the supplier was operating in a highly unhygienic conditions and supplied expired meat and chicken to both Yum! Brands, Inc. (NYSE:YUM) and McDonald’s Corporation (NYSE:MCD).

The incident has sent shock waves to the Chinese consumers, who are outraged over the carelessness of the two companies. Moreover, the report has now put both Yum! Brands, Inc. (NYSE:YUM) and McDonald’s Corporation (NYSE:MCD) into the back seat, hurting their ambitions to dominate the segment in the world’s largest market space as well as their efforts to recoup the losses that they have from decreased sales in the United States. China serves as one of the biggest markets for Yum! Brands, Inc. (NYSE:YUM) and is among the fastest growing space for McDonald’s Corporation (NYSE:MCD). As recent as last week, Yum! Brands, Inc. (NYSE:YUM) had reported improved same stores number for the second quarter in China, which grew by 50%, but Monday’s event has changed the sentiment severely.

In response to the report and to curtail the damages, both Yum! Brands, Inc. (NYSE:YUM) and McDonald’s Corporation (NYSE:MCD) have issued statements that they have immediately stopped using the Shanghai unit of OSI group.”We will not tolerate any violations of government laws and regulations from our suppliers,” said Yum China.

While Reuters cited McDonald’s: “If proven, the practices outlined in the reports are completely unacceptable to McDonald’s anywhere in the world.”

In addition to this,  the two companies confirmed that they have taken the supplier’s meat off their shelves and are conducting a thorough investigation into the matter while extending their full co-operation to Chinese regulators. In the meanwhile, both the company have sincerely apologized to Chinese consumers.

Disclosure: none