Yum! Brands, Inc. (NYSE:YUM) has said that sales for the quarter ended August in its stores in China is expected to fall by 13% due to problems with a supplied. The fast-food chain giant clarified that the problems have had negative impact on the company’s Pizza Hut and KFC chains.
The supplier, Shanghai Husi, which is owned by U.S.-based OSI Group, has been extensively accused by Chinese authorities of selling meat that have exhausted their shell life to the food chains. Even though Shanghai Husi isn’t a major supplier, the media has blown the whole thing out of proportion, resulting in damaged image for KFC and Pizza Hut, both subsidiaries of Yum! Brands, Inc. (NYSE:YUM).
“While sales are beginning to rebound, they continue to be negative. Our brands have proven resilient over time, and we expect this to be the case with this situation as well,” David E. Russell, Yum’s vice president of finance, said in the statement. He further said that “The Company plans to vigorously pursue legal action against OSI and Husi to recover damages from the incident.”
According to America’s Markets Yum! Brands, Inc. (NYSE:YUM) had faced similar challenge last year due to a bird flu scare resulting from chicken supply issues. The company however managed to bounce back raking in $777 million in profits.
China is an invaluable market to Yum! Brands, Inc. (NYSE:YUM), having KFC, Pizza Hut, and Taco Bell. The company must therefore do all that’s necessary to revive the market and regain consumer confidence.
Information on MarketWatch indicates that Chinese prosecutors have also made arrests relating to the issue. This comes more than a month after Shanghai Husi was issued with a temporary ban on all its operations in China. Those arrested are Shanghai Husi employees. They’ve were charged with the sale of substandard products, which might cause harm to human health.
Yum is expected to provide full information on what it expects in sales till the end of the year.
This article has been written by Victor Ochieng.