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Walmart Recalls Meat Items from China

Zacks Equity Research

Retail giant Wal-Mart Stores Inc. (WMT) announced that it is recalling its donkey meat products in China after DNA testing showed traces of fox meat in the same.

As per media reports, Walmart recalled all products from its local vendor DezhouFujude Food Company Ltd., after fox DNA was identified in samples. The company has not only decided to compensate the affected consumers, but is also increasing DNA testing in China, going beyond what is legally required in China.

Last year, Walmart announced its plans to invest 100 million yuan ($16.5 million) over three years to upgrade its food safety measures in China. The company also planned to start a mobile food-inspection program and increase supplier training. However, the company has not been able to maintain the set standards, which is denting its reputation. According to Bloomberg, the company had encountered similar issues in China earlier too such as mislabeling pork in 2011.

Not only Walmart, Kentucky-based famous restaurateur Yum! Brands Inc. (YUM) also faced questions about the quality of chicken supplied to its KFC units in China. Though Yum Brands’ KFC division is working to repair its reputation, sales in China continue to decline.

Walmart officials are co-operating with Chinese authorities in their investigation and are leaving no stone unturned to maintain the company’s reputation in the world’s most populous nation.

China is a strategic market for Wal-Mart as the global chain is facing a difficult retail environment in the U.S. following the recent slowdown of the economy. Moreover, amid several legal issues, the grocery giant had to part ways with its Indian joint venture partner, Bharti Enterprises in Oct 2013. Walmart is thus geared to expand its Sam’s Club stores in China. Walmart currently has 404 stores in China and has plans to add as many as 110 stores over the next three years in China. Walmart currently holds a Zacks Rank #3 (Hold).

Other better ranked retailers include Harris Teeter Supermarkets Inc (HTSI) and The TJX Companies Inc. (TJX), both of them carrying a Zacks Rank #2 (Buy).

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