A truck leaves the factory of Shanghai Husi Food Co, a unit of Illinois-based OSI Group, in Shanghai on July 21, 2014. Photo: CFP

It has been more than one month since Shanghai Husi Food Co, one of global food giant OSI Group's China branches, was caught in a food safety scandal in which the company was found mixing expired meat in its products.

The scandal not only tarnished its brand image, but also dented the sales of major customers such as fast food chain McDonald's and Yum! Brands Inc, owner of KFC and Pizza Hut.

McDonald's, which began to limit its menu offerings after the scandal, has only recently restarted offering meat products to Chinese consumers after it found a new supplier. However, operations in Shanghai Husi are still currently halted and show no signs of restarting soon.

"Shanghai Husi operations have been temporarily suspended as part of the internal and external investigation process," and OSI China is collaborating with the Shanghai authorities with the investigation, the company said in a statement e-mailed to the Global Times on Saturday.

The company also said that among OSI's 11 facilities in China, only operations at Shanghai Husi are suspended. But it is not hard to tell that OSI is suffering from huge losses in China, as most of its major customers have ended their business ties with OSI after the scandal.

Tough situation

On July 20, a Shanghai TV station reported that Shanghai Husi was using meat past sell-by dates in its products. In some cases, some of the meat had expired by more than seven months.

Within days after the report, most of OSI's longtime customers, including big names such as McDonald's, Yum! and Burger King, announced they would end business with OSI, a global food processor that has a history of over 100 years.

McDonald's has ceased cooperation with OSI China. But Yum!, which runs KFC, announced on August 1 that it will stop procuring from OSI on a global basis.

The scandal has gone beyond the mainland market. On July 24, Hong Kong authorities announced a ban on imports from OSI until the mainland's investigation reaches a conclusion. Japan also halted imports from OSI on July 23.

Calls to the Shanghai Municipal Food and Drug Administration went unanswered as of press time. But media reported that so far six executives from Shanghai Husi have been detained.

Liu Xinwu, a food safety lawyer at Jiangsu-based Hengjiu Law Firm, told the Global Times on Sunday that the firm may face administrative fines and even criminal charges depending on the damage it caused.

"The scandal was a major blow to OSI and it will be hard for Shanghai Husi to get back on track," Wang Danqing, a partner at Beijing-based ACME Consultancy, told the Global Times on Thursday, adding that OSI may choose to use a new brand to continue to do business in China.

The company did not disclose how much of a loss it will suffer from the scandal "for competitive reasons."

In 2013, OSI reported annual sales of $5.9 billion, making it the 62nd largest private company in the US, according to Forbes.  

'Still committed'

Food safety has been a pressing issue in China and in many cases, foreign firms have been involved.

In the latest case, a Walmart store in Shenzhen, South China's Guangdong Province, was accused of using expired meat to make deli food for consumers earlier this month.

Wang noted that the OSI scandal is another example that shows how devastating a food safety scandal could be to a firm and can also serve as a warning to other food companies.

In 2008, products from domestic baby-formula producer Sanlu Group were found to be tainted by melamine and led to the death of six children. The company eventually went bankrupt and the Sanlu brand vanished.

However, experts noted that such an end might not befall OSI and it is unlikely OSI will quit the Chinese market. "Unlike the deadly cases with Sanlu, OSI does not directly supply consumers and it is still possible for it to win back its customers as long as it makes changes," Wang noted.

Ma Chuang, an independent industry analyst based in Beijing, also noted that it is not easy for the food industry in China to replace OSI in the short term, as it has gained long-established expertise in production techniques and standards.

In the statement to the Global Times, OSI China also said that both internal and external investigations in places other than Shanghai have shown that their products are safe.

"Given the current measures adopted by OSI, I think that the company is heading toward a rather optimistic future," Ma said.

On July 26, OSI announced that a new management team has been brought in to China to ensure that operations run effectively and the China branch is operating in accordance with its global standards.

So far there has been no downsizing or layoffs at its China branches, it said. "However, if that becomes necessary, we will follow the regular, established process in accordance with China's relevant laws and regulations," the company said. 

Who will benefit?

As fast food chain giants like McDonald's and KFC have cut business ties with OSI, analysts say that Chinese companies may get a chance to get on the supplier list of these major fast food chains.

McDonald's changed its meat suppliers to Beijing Hormel, a joint venture between US food producer Hormel and Chinese dairy producer Sanyuan Group, as well as a Shenzhen-based joint venture established by US food producer Keystone, China's State-owned COFCO and McDonald's, according to information posted on McDonald's website.

After the Shanghai Husi scandal broke out, McDonald's pulled meat items from its branches in China for several weeks. At present, though meat supplies have returned to normal, it still has not nailed down a vegetable supplier as it is still evaluating vegetable suppliers, according to recent media reports.

It did not answer questions from the Global Times on whether it will restart cooperation with OSI in the future. Efforts to reach Yum also failed as of press time.

Also, media reports said that Thai meat processor Charoen Pokphand Foods has obtained a contract with McDonald's in Japan.

Wang said that it is still premature to say domestic food brands could benefit from OSI's misfortune. "It will still take time for international food companies to fully trust China's homegrown companies," Wang said.

Ma also noted that though domestic players could take over some of OSI's share in the raw material market, in terms of food processing, it will still be hard for domestic firms to replace OSI in the short term.