Supply Chain Quality in China - Wal-Mart, Five-Spice Donkeys and Foxes

I suspect this example might find itself appearing in more than a few BUSS4 essays on China in summer 2014 - and why not? Wal-Mart's business in China has been hit by a quality problem that has echoes of the UK horse meat scandal.It is reported that Wal-Mart has recalled a "five-spice donkey" meat product in China after tests showed that it contained DNA of other animals - namely fox meat.

Apparently five-spice donkey is a specialty snack sold in Wal-mart's China stores.

Wal-mart has apologised for the error, agreed to compensate affected customers and help local food and industry agencies in the eastern Shandong province investigate its Chinese supplier.

Wal-Mart's China president and CEO, Greg Foran has said:

"We are deeply sorry for this whole affair,"

"It is a deep lesson that we need to continue to increase investment in supplier management."

No wonder Greg Foran is so sorry. The publicity surrounding the fox-meat discovery could dent Wal-Mart's reputation for quality in China's $1 trillion food and grocery market where it plans to open 110 new stores in the next few years. China is now the largest grocery market in the world and is set to grow to $1.5 trillion by 2016, according to the Institute of Grocery Distribution.

Wal-Mart has struggled to gain a foothold in China, although it still plans to open around 100 supermarket-format stores in the next three years. Wal-Mart's market share in China fell from 7.5 percent to 5.2 percent over the last three years.

As we reported on the Business Blog a few days ago, Wal-Mart has enjoyed better success in China with its Sam's Club wholesaler format, which is targeted at more affluent, car-owning households in the Tier 1 and Tier 2 cities.

However, the five-spice donkey / fox meat story is a great example for students to note down. It illustrates so well the risks involved in international retailing, particularly food, when the retailer does not have control of the supply chain.