Chains that were negatively impacted by consumer fears surrounding excessive use of antibiotics by chicken suppliers and an outbreak of the H7N9 strain of avian influenza in 2013 recently reported a recovery in sales trends. However, heightened sales volatility should be expected due to an increasing number of highly publicized food safety incidences and in some cases supply chain weakness.
Fitch views supply chain reliability and reputational risk as the biggest threats to US restaurant companies expanding in emerging markets due their use of local suppliers and the fact that food scares, particularly in
The country's latest food scare involves a Chinese meat processor supplying multi-national restaurants with expired beef and chicken.
YUM's SSS increased 15% in
YUM's efforts to strengthen its local supply chain following consumer backlash around excessive antibiotic use by certain suppliers included working with Chinese suppliers to eliminate sourcing from over 1,000 small and less modern chicken farms. In response to the latest food safety issue, YUM stated that Shanghai Husi was not a major supplier and that it has immediately terminated all procurement from the company.
Additional information is available on www.fitchratings.com.
The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.
Source: Fitch Ratings
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