Yum! Brands, Inc. YUM seems to be taking rumors regarding the quality of its food very seriously, especially after food safety scandals dealt a major blow to its business in some of its most profitable markets. Reportedly, the fast food giant has sued three media companies in China — Chen An Zhi Chenggong Culture Communications Ltd., Wei Lu Kuang Technology and Ling Dian Technology — for allegedly spreading rumors about the quality of its food.
KFC China reportedly announced on its website that these media companies are tarnishing its reputation by spreading false information about its products on social media. KFC alleged in its statement that these companies misinformed consumers, via microblogs, photos and articles, that its chickens had six wings and eight legs.
According to Yum! Brands, digitally modified photos of deformed chickens and rumors of maggots in a KFC delivery order have been spread through 10 WeChat accounts used by these three media companies. KFC had identified almost 4,000 defamatory messages by the end of April.
Yum! Brands has reportedly asked for a compensation of up to 1.5 million yuan (about $245,000) from each company, along with an apology for spreading baseless information. Further, the company has asked these companies to immediately stop spreading such rumors.
The legal move comes in the wake of declining traffic at KFC China outlets due to two food safety scares in the past two years and may be considered as an attempt to win back consumers’ confidence in the region. China, which contributes around half of Yum!'s revenues and profit, ranks as one of the most important markets for the quick service chain.
Yum! currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the restaurant industry are BJ's Restaurants, Inc. BJRI, Ruby Tuesday, Inc. RT and Zoe's Kitchen, Inc. ZOES. All these stocks sport a Zacks Rank #1 (Strong Buy).
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