KFC and Pizza Hut Struggle in China Following Expired-Meat Scandal
After it was revealed last week that Yum Brands supplier Shanghai Husi Food Co. was selling expired meat, the company has seen its Chinese market go from golden to rancid.
On Wednesday, the parent company of Taco Bell, Pizza Hut and KFC said in an SEC report that the Chinese meat scandal has had a "significant, negative impact" on same-store sales.
"While OSI [owner of Shanghai Husi] was not a major supplier to Yum! Brands, these events triggered extensive news coverage in China that has shaken consumer confidence, impacted brand usage, and disparaged the hard work of our over 400,000 Chinese employees," the company said in a statement.
This statement comes after a report that the meat supplier sold expired meat to chains including Yum, McDonald's and Starbucks. While McDonald's has decided to continue to do business with the company, other chains, such as Burger King and Yum, cut ties with Shanghai Husi and all affiliated businesses.
Even if the supplier cleaned up its act, Yum Brands can't afford to have customers worrying about the quality of its meat. The Chinese market is huge for Yum Brands. Early this year, the company announced plans to open at least 700 new restaurants in China this year. Last quarter, sales increased 21 percent in the company's China division, helping drive a 6 percent growth in worldwide sales.
However, when customers get scared off, it has a huge impact on the brand. Whenever bird flu scares sweep China, KFC's low sales drag down the entire company.
In the end, it doesn't matter how many quirky mashups the company rolls out or if chicken is thriving in the U.S. If Yum Brands can't get the Chinese market to trust its food, Pizza Hut and KFC are in hot water.