Yum Brands Inc YUM.N and McDonald's Corp MCD.N are facing a new food safety scare
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McDonald's and parent Yum apologized to customers on Monday after Chinese regulators shut a local meat supplier following a TV report that showed workers picking up meat from a factory floor, as well as mixing meat beyond its expiration date with fresh meat.
The companies said they immediately stopped using the supplier, Shanghai Husi Food Co Ltd, a unit of Aurora, Illinois-based OSI Group, and had switched to alternates. They added that the factory served restaurants in the Shanghai area.
The report on China's Dragon TV brought Yum and McDonald's back into the firing line following the sales-battering 2012 scandal that involved chicken pumped with excessive amounts of antibiotics.
"We will not tolerate any violations of government laws and regulations from our suppliers," said Yum China, which required all of its and restaurants to seal up and stop using all meat materials supplied by the Husi factory.
The division, Yum's No. 1 business unit, had just seen its KFC restaurants bounce back from the double whammy of the food safety scare and a bird flu outbreak.
"If proven, the practices outlined in the reports are completely unacceptable to McDonald's anywhere in the world," a China-based spokeswoman for McDonald's told Reuters.
Husi provided McDonald's with chicken, beef and lettuce, a McDonald's U.S. spokeswoman said.
China is McDonald's third-biggest market as measured in number of restaurants.
"I think this is going to be really challenging for both these firms," said Benjamin Cavender, Shanghai-based principal at China Market Research Group.
"I don't know that this is something an apology can fix so easily, because at this point people don't have a whole lot of trust that they have good systems in place," he added.
Yum shares were down 3.5 percent at $74.72 and McDonald's shares were down 0.9 percent at $98.13 on Monday afternoon on .
The Shanghai Municipal Food and Drug Administration shut Husi down on after the local Chinese TV broadcast aired. In addition to the meat safety violations, the program showed workers saying that if clients knew what they were doing, the firm would lose its contracts.