December 24, 2012

KFC's food safety scare affect New Hope Liuhe group

The fortune of Liu Yonghao of New Hope Liuhe group, who allegedly supplied chickens stuffed with antibiotics, was dented due to a food-safety scare at Yum Brands' KFC outlets in China.

Two slaughterhouses in Shandong province have already closed as authorities investigate claims aired earlier this week on CCTV. Yum has said it's cooperating with inspectors and that its food supply chain was safe. But food inspectors in Shanghai said on Thursday (Dec 20) that they had found excessive antibiotics in several batches of chicken supplied to KFC in 2010 and 2011.

The company said it had sent the raw chicken back to the supplier, Liuhe Group in Shandong. Prior to the CCTV report, KFC was already trying to damp down online claims that Chinese chickens bred in 45 days for slaughter were unsafe (farmers use antibiotics to plump up chickens for a faster turnover).

CCTV identified Liuhe Group and Yingtai Food Group as suppliers of chicken to KFC and McDonalds. Both companies have said they have stopped accepting deliveries from these suppliers. Shares in Shenzhen-listed New Hope Liuhe have since fallen 7%, capping a poor year for Liu's listed vehicle. Forbes estimated his family's wealth in October at US$2.75 billion, which represented a big drop from 2011.

That same year, Chengdu-based New Hope acquired Liuhe Group and renamed its Shenzhen-listed firm as New Hope Liuhe. Then again, Chinese consumers have weathered a horrific series of food scares and this one may blow over. Yum Brands has a lot more at stake: it gets half of its profits from China, where it has 3,700 KFC stores.