Any doubt as to the importance of workers in the food and beverage supply chain was put to rest back in 2014. This was a true turning point in China’s relationship with food safety. It was then Shanghai branches of U.S. food supplier OSI Group became household names throughout China and in much of the industry. OSI supplies products for major restaurant chains including McDonalds, KFC, and Pizza Hut. Their rise to stardom, though, was for all the wrong reasons.
In July of that year, an investigative journalist videotaped conditions within the supplier factory, focusing on worker behavior. Employees were found to be improperly handling products, picking food up off the ground and returning it to the line, and re-labelling expired meat. Eventually, investigators found over 4,300 cases of meat with forged dates. All of this sent shockwaves through the retail restaurant industry.
By September, all but one major fast food chain had cut ties with OSI. The damage, however, was already done. Restaurants throughout greater China and Japan stopped the sale of chicken products, severely impacting bottom lines, and consumer trust became fragile at best. OSI began losing millions of dollars a day in revenue. Within a year, senior executives at the company cited total loses close to US$1 billion.
What Happened Next?
As a result of the video, Chinese officials began a deeper investigation into OSI and its partners. Ten local employees received undisclosed prison sentences in 2016. Additionally, officials deported OSI’s general manager in China. Although OSI disputed these rulings, courts felt these were generally lenient given cooperation by parties involved.
How are Things Today?
OSI brought to light the unfortunate state of food safety in China at the time. Since then, though, has anything really changed?
From our perspective, things have improved markedly in the four years since OSI. Local and provincial governments have made great strides in improving not only food safety competence from workers, but also among consumers. In Shanghai alone there have been a number of measures to help restaurants improve their standards.
- First is the new grading system for restaurants. While it is a little subjective – employing the use of smiling, indifferent, and sad faces – the intent is certainly in the right place.
- Next are live video feeds into kitchens. These are usually displayed on large monitors throughout restaurants. While there is the odd person twiddling their thumbs instead of working, we’ve yet to see any egregious acts that would make us get up and leave.
- Lastly are notable campaigns by the government to show just how serious they are on safety. A 2017 revision of food safety regulations introduced higher entry points for new businesses, as well as streamlined supervision and whistle-blower mechanisms.
In 2016 alone, Shanghai revoked 14,000 restaurant licenses and doled out US$28 million in fines.
What Can We Learn?
Whether you’re a major conglomerate or individual operator, having a food retail business in China means working with Chinese suppliers. That translates to the potential for an OSI scandal hitting a little too close to home. What can your business do today to shield itself from this worst-case scenario?
- Know your suppliers. Don’t assume everything is alright just because you haven’t heard anything wrong. Be proactive and make the supplier relationship one of partnership over dictation. That includes taking the necessary steps to upskill workers when needed.
- Bigger isn’t better. Prior to its fall, OSI invested close to US$400 million in expanding its China operations. They had all the latest protocols and systems in place, but forgot about the workers themselves. When scaling, make sure you do so in a sustainable way.
- Check your arrogance at the door. The latest casualty of China’s food safety vigilance was Shanghai bakery Farine. A disgruntled employee videotaped the use of expired flour. The general consensus among the F&B community was that owners felt they would never be caught. China is no longer a lawless wild west. Now, regulations are more than just words on paper.
Having the right approach to food safety starts and ends with your workers. When they are trained well, have the right encouragement, and open lines of communication to management then you have a recipe for success. As we have seen in the OSI case, however, this trifecta is rarely given the importance it deserves.