| LOS ANGELES
LOS ANGELES Jan 8 KFC parent Yum Brands Inc
said it had stopped using chicken from suppliers in
China that are now under a government investigation before the
review was even announced, and analysts said they expect the
company to recover from the business hit in its biggest market.
Yum, which gets more than half of its overall revenue and
operating profit from China, on Monday warned that bad publicity
from a Chinese government food safety review of chicken
suppliers hit its sales in China harder than expected in the
While consumer backlash sent sales at established China
restaurants down sharply at the end of December, Wall Street
analysts expect that Yum's business will rebound as negative
media coverage wanes.
"Precedent suggests Yum can weather this type of incident,"
Bernstein Research analyst Sara Senatore said.
In 2005, Yum pulled some products from its KFC restaurants
in China because they contained "Sudan Red" dye, which was
banned from use in food due to concerns it could lead to an
increased risk of cancer.
Yum's China sales took a similar hit from that incident, but
rebounded in the subsequent months, Senatore said.
Yum says it is cooperating with the Chinese government's
review of two poultry suppliers - Liuhe Group Co. and Yingtai
Food Group Co - that provided chicken with unapproved levels of
antibiotics to KFC. Those suppliers "represent an extremely
small percentage of product to KFC", according to Yum.
The company had stopped sourcing from Liuhe in August and
has halted purchases from a problematic Yingtai plant, Yum
spokesman Jonathan Blum told Reuters on Tuesday.
Yum had canceled purchasing from the Yingtai plant before
the government investigation was announced in late December,
said Blum, who did not have more specific information on the
Yum stopped using the suppliers after its own random tests
showed that they were not meeting the company's own standards,
"We certainly didn't knowingly put any product into the
marketplace that had excessive antibiotics," Blum said. "We feel
comfortable that we have the very highest, industry-leading
standards on food quality and food safety."
As part of its response to the publicity, Yum will use a
combination of social media, mainstream media and other
marketing and promotional activities to communicate directly
with consumers, Blum said.
Chinese food safety authorities, which were looking into a
report from China Central Television that some of the chicken
supplied to KFC contained antiviral drugs and hormones to
accelerate their growth, said in late December that KFC was
supplied with chicken that contained excess amounts of
antibiotics in 2010 and 2011.
Subsequent findings by the Shanghai Food and Drug
Administration found the level of antibiotics and steroids in
Yum's current batch of KFC chicken supply to be safe, but the
watchdog found a suspicious level of an antiviral drug in one of
the eight samples tested.
Yum has more than 5,100 restaurants in China and is the
largest Western restaurant operator in China.
As a foreign brand, KFC generally enjoys a reputation of
higher quality in China, where it now faces tougher local and
China has been trying to stamp out health violations that
have dogged the country's food sector amid reports of fake
cooking oil and tainted milk. In 2008, milk laced with the
industrial chemical melamine killed at least six children and
sickened nearly 300,000.
Shares in Yum were down 4.2 percent at $65.03 in midday
trading on the New York Stock Exchange.