Chicken scare takes bite out of KFC's reputation

Restaurant chain's owner apologises as reports shake diners' confidence in products - again

PUBLISHED : Saturday, 12 January, 2013, 12:00am
UPDATED : Saturday, 12 January, 2013, 4:02am

Yum Brands, the parent company of US fast-food chain KFC, is facing its worst crisis in two decades on the mainland.

The company's vice-chairman apologised to Chinese consumers on Wednesday night after media reports that two of KFC's big suppliers fed chicken excessive amounts of antibiotics and hormones.

The company was accused of failing to report the case to the government after discovering illegal drugs in the suppliers' chicken products.

The adverse publicity has hit the firm's sales harder than expected. Yum said same-store sales in China, which accounted for more than half of its total revenue, fell 6 per cent in the fourth quarter, compared with a 6 per cent rise in the previous quarter.

Beyond the sales decline is mainland consumers' shaken confidence in the brand, which had been considered a safe, clean and good-quality option.

Over the past month, "finger-licking good" chicken and "New Orleans chicken wings" were no longer on Pu Lijian's wish list when the Beijinger dropped by the KFC restaurant near his home for breakfast. Instead, he ordered congee, fried dough sticks and soy milk.

"I will still come here for breakfast, because KFC and McDonald's are still a better place than street vendors and small restaurants. But I won't eat chicken here any more, and I will definitely not bring my kids here," the 38-year-old businessman said.

Many other consumers said they would cut back on their visits to the chain's restaurants.

The Shanghai Food and Drug Administration said on December 20 that eight batches of chicken samples supplied to Yum by the Liuhe Group had overly high levels of antibiotics. An investigation is continuing.

Yum vice-chairman Sam Su admitted the firm's inspection processes and internal communications were lacking and that it failed to change its suppliers quickly enough after discovering the quality problem.

"We will make serious changes and raise our management standards to win back your trust," Su said.

This is not the first time Yum has been involved in a food safety scandal on the mainland. In 2005, Beijing's food quality watchdog found in a test a cancer-causing dye called Sudan 1 in KFC's hamburger and chicken wing products. That year, the firm stopped selling a vegetable soup available only in the mainland market after it was reported to be harmful to human health. In April last year, Guangzhou media reported that the packaging of KFC's "family big box" contained more brightener than the government allowed.

Yet the impact of the negative publicity on sales only lasted a few weeks or months.

"I would say that's probably going to be the case again, depending on how long the media carries the story and how long it takes to resolve the investigation as to the root cause of the antibiotics issue," said Steve West, a restaurant analyst at New York-based research broker ITG.

Li Weihua, a researcher at the China University of Political Science and Law, said the media tended to sensationalise product quality problems in big brands like KFC and McDonald's.

"But the incident this time will inflict worse damage on the brand, considering the cumulative effect of all these scandals," Li said.

Since opening its first mainland store in Beijing in 1987, Yum has expanded to more than 4,000 KFC restaurants on the mainland, far more than McDonald's 1,000-plus outlets. In 2011, Yum acquired hotpot chain Little Sheep. Yum's operating profit from China jumped from US$109 million in 2002 to US$908 million in 2011 and is expected to have reached a new high last year.

But the firm is facing intense competition and consumers' rising awareness about healthy eating. KFC has introduced typically Chinese-style products, from hot pot rice to fried dough sticks, in recent years.