Meat supplier in China food scandal grew with McDonald's

Reuters

By Tom Polansek

(Reuters) - Eight months ago in front of a crowd of food industry executives gathered at a fancy Chicago hotel, a top McDonald's Corp executive lauded the boss of meat supplier OSI Group for his dedication to the fast-food giant's "McFamily".

On Wednesday, McDonald's stood by its long-time business partner OSI in the face of a deepening food safety scandal at a unit of OSI in China where five people are detained.

Fast food chain KFC's parent Yum Brands cut ties to OSI, but the history of McDonald's and OSI are more deeply intertwined.

Illinois-based OSI' octogenarian owner, Sheldon Lavin, has built an empire in China over the past 20 years, largely on the back of business from the Golden Arches.

Privately held OSI, little known outside of the tight-knit food industry, has worked with McDonald's for nearly 60 years.

Lavin was "appalled" at a report on China's Dragon TV that showed workers at an OSI unit, Shanghai Husi Food Co Ltd, processing out-of-date meat and meat that had fallen on the factory floor, he said in a statement on Wednesday. OSI declined to comment on company plans or history.

A former banker, Lavin initially worked as a consultant for OSI, joining full time in the 1970s at the request of McDonald's. He took control in the 1980s, according to industry magazines, which did not describe how Lavin became owner.

He focused aggressively on expanding in China, telling employees in the early 1980s: "I don't care if we sell the erasers off pencils; we are going to China," according to a 2012 article in The National Provisioner magazine.

OSI grew out of Otto & Sons, a meat business founded in Chicago in 1909 by German butcher Otto Kolschowsky, the magazine said in a 2004 article. In 1955, Kolschowsky's grandsons struck a deal to be the restaurant's first supplier of fresh hamburgers, the article said.

"When I really took control in the 80s, I decided there was no reason for me to stay if I didn't build OSI into something big," Lavin said in a 2013 interview with Independent Processor magazine. He boasted the company became "the largest protein supplier in the world to the McDonald's system."

In November 2013, Lavin was inducted into the Meat Industry Hall of Fame at the Drake Hotel in Chicago, and McDonald's USA President Jeff Stratton praised his commitment to family, including the "McFamily" of McDonald's, and community service, according to an account of the event on OSI's website.

Even Lavin's community service is tied to McDonald's: he is on the board of trustees for the Ronald McDonald's House Charities.

GLOBAL REACH

OSI, which had $6.1 billion in sales last year, has more than 50 facilities in 17 countries. McDonald's, the world's largest restaurant company by revenues, has outlets in more than 100 countries. It declined to comment on the value of its contracts with OSI.

OSI opened its first plant in China in 1992, just two years after McDonald's opened its first restaurant in the country. It was one of the food suppliers for the Beijing Olympics in 2008, according to the OSI website.

The fast-food giant will buy food from other OSI units in China while OSI's Shanghai Husi is closed, McDonald's said on Wednesday. A day earlier, McDonald's CEO Don Thompson said he felt "deceived" by an audit for Shanghai Husi Food, made by a third party company, that did not reveal the problems.

Yum is finding different suppliers to replace OSI, which provided food to the restaurant chain in China, Australia and the United States. Yum said OSI was not among its major suppliers.

LOW PROFILE

OSI buys meat from the world's biggest producers, including Cargill Inc, churns it into hamburger patties and chicken nuggets, and then sells the products to restaurants. OSI also sells fruit and vegetables.

Lavin takes pride in the Illinois-based company's low profile, telling The National Provisioner in 2004 that OSI was "one of the biggest companies in the world that no-one has ever heard of."

OSI until this week's scandal has largely kept out of the public eye, with few recalls of food or transgressions, according to searches of government and regulatory websites.

A subsidiary, Carolina Culinary Foods, recalled about 2.8 million pounds of fully cooked chicken breast strips sold by Oscar Mayer/Louis Rich in 2007 because they might have been contaminated with listeria.

The bacteria can cause serious illness for people with weakened immune systems, and the U.S. Department of Agriculture, in a recall notice issued at the time, said the health risk was high.

Otherwise, the company has a mostly clean record in the United States, industry executives said.

Chuck Jolley, president of the Meat Industry Hall of Fame, said he was shocked when he read OSI was at the center of the scandal in China.

"I had to go back and double check" it was OSI, he said.

OSI has other units in China, which are still working, and Dave Theno, a former senior vice-president for product quality and safety at fast food company Jack in the Box, said the company's priority was to get the Shanghai plant back to work serving McDonald's.

"Job No. 1 for them is to get the problem behind them and see if they can’t get it requalified to supply those guys,” he said.

(Reporting by Tom Polansek, editing by Jo Winterbottom and Peter Henderson)

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