Yum’s Chinese Chicken Troubles

While Yum! Brands’ (NYSE:YUM) KFC might have hit gold when China took a liking to the fast food chain, recent chicken-related issues show that the company has to stay on the ball or things can go bad quickly.

Yum! Brands has had a few missteps in China before, so the most recent issue didn’t come as too much of a shock: he chicken used at Chinese KFC restaurants allegedly had high levels of antibiotics — higher than acceptable.

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The Chinese government didn’t reprimand Yum harshly at the time, hinting that the company may finally be getting past Chinese scrutiny of its brand. However, consumers were a little less forgiving. When word got out about the chicken, thousands commented negatively on the company.

Yum’s chairman and chief executive of its China operations, Sam Su, apologized to consumers and accredited the chicken issues to poor internal communication and a failure to address problems quickly. China is critically important to Yum, as the company earned 44 percent of its revenue there last year…

Fortunately for Yum, the Chinese government seems to be focusing more on the chicken suppliers. One Chinese chicken supplier, New Hope Liuhe Co., apologized for negligence and closed a processing plant. Su said Yum would strengthen its supervision of suppliers in the future.

Unfortunately, the Chinese government is still wary of Yum, as Chinese authorities said last month that they were doing a follow-up investigation on Yum’s own chicken testing — in which the company found 8 out of 19 batches of chicken samples had excessive levels of antibiotics in 2010 and 2011 — to see if the company had responded appropriately to the findings. Yum expects its fourth-quarter same-store sales in its China division to drop 6 percent, which could have a stiff impact on the company’s total revenue.

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