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China Food Safety and Poor Earnings Put These Consumer ETFs in Focus - ETF News And Commentary

Benzinga.com
0 Comments| July 24, 2014

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It seems that the food safety issue will not leave Yum! Brands Inc. (YUM) and McDonald's (MCD) so easily as the duo would hope. These chains, especially Yum! Brands, have been slammed with serious allegations over food safety in China in recent days.

Just as Yum's China business started to gain strength after suffering negative publicity regarding the quality of chicken supplied to KFC China in December 2012, the chain again got trapped in a food-safety scandal in China on July 21. Another restaurant bellwether McDonald's, also faced the same allegation.

The latest charge was related to supplier Shanghai Husi Food Co Ltd, a unit of U.S.-based OSI Group LLC, which sold expired meat to the two quick-food chains, as per Reuters. McDonald's Holdings Co (Japan) acknowledged sourcing almost one fifth of its Chicken McNuggets from the supplier and confirmed that it had stopped the sale of this product on Monday.

The agency also noted that, on July 22, Starbucks confirmed selling Shanghai Husi-supplied chicken items at some of its outlets earlier. Shanghai Husi was closed by local controllers as its staff was shown using expired meat and mixing fresh meat with that which had fallen on the floor in a TV report.

Past Issues

China plays a pivotal role in Yum!'s growth story. After contributing immensely to Yum! Brands' growth in the recent years, the China business - accounting for more than double its U.S. revenues - started faltering since fourth-quarter 2012 – on food safety concerns.

In December 2012, China's state television, CCTV had reported that two poultry farms in the Shandong province of China had supplied chicken fed with unapproved levels of antibiotics to KFC and McDonald's (read: China ETFs to Watch on Strong Manufacturing Data).

Although Yum! reiterated its commitment toward ensuring food safety and assisted the government in the investigations, the shaken consumer confidence over the brand due to the whole incident continues to mar the company's performance ...

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