McDonald's, Yum Apologize For Rotten Meat Scandal

* Meat supplier shut down after safety violations exposed

* TV footage shows workers picking up meat from floor

* Yum, McDonald's warn of potential China product shortfalls

* Incident highlights broader China food supply chain issues (Adds analyst's comment, Burger King share reaction)

By Adam Jourdan and Lisa Baertlein

SHANGHAI/LOS ANGELES, July 21 (Reuters) - Yum Brands Inc and McDonald's Corp are facing a new food safety scare in China, denting the fast-food companies' efforts to shore up reputations and businesses that were hurt by a 2012 safety scandal in one of their biggest markets.

McDonald's and KFC parent Yum apologized to customers on Monday after Chinese regulators shut a local meat supplier following a TV report that showed workers picking up meat from a factory floor, as well as mixing meat beyond its expiration date with fresh meat.

The companies said they immediately stopped using the supplier, Shanghai Husi Food Co Ltd, a unit of Aurora, Illinois-based OSI Group, and had switched to alternatives. They added that the factory served restaurants in the Shanghai area.

The report on China's Dragon TV brought Yum and McDonald's back into the firing line following the sales-battering 2012 scandal that involved chicken pumped with excessive amounts of antibiotics.

"We will not tolerate any violations of government laws and regulations from our suppliers," said Yum China, which required all of its KFC and Pizza Hut restaurants to seal up and stop using all meat materials supplied by the Husi factory.

The division, Yum's No. 1 business unit, had just seen its KFC restaurants bounce back from the double whammy of the food safety scare and a bird flu outbreak.

"If proven, the practices outlined in the reports are completely unacceptable to McDonald's anywhere in the world," a China-based spokeswoman for McDonald's told Reuters.

Husi provided McDonald's with chicken, beef and lettuce, a McDonald's U.S. spokeswoman said.

China is McDonald's third-biggest market as measured in number of restaurants.

"I think this is going to be really challenging for both these firms," said Benjamin Cavender, Shanghai-based principal at China Market Research Group.

"I don't know that this is something an apology can fix so easily, because at this point people don't have a whole lot of trust that they have good systems in place," he added.

Yum shares fell 4.2 percent to close at $74.13 and McDonald's shares lost 1.5 percent to $97.55.

"Although the issue is being addressed, we would not rule out the possibility of temporary sales disruptions," Baird analyst David Tarantino said in a research note lowering his target price on the company.

The Shanghai Municipal Food and Drug Administration shut Husi down on Sunday after the local Chinese TV broadcast aired. In addition to the meat safety violations, the program showed workers saying that if clients knew what they were doing, the firm would lose its contracts.

OSI said on its Chinese website that management was "appalled by the report." The company said it has formed its own investigation team, is fully cooperating with government inspectors and will take all necessary actions based on results of the investigation.

"Management believes this to be an isolated event, but takes full responsibility for the situation," OSI said.

OSI, which has close to 60 manufacturing facilities worldwide and had revenue of more than $5 billion in 2012, has been supplying McDonald's in China since 1992 and KFC and Pizza Hut parent Yum since 2008, according to its website.

SUPPLY CHAIN ISSUES

McDonald's and Yum are the top two brands by sales in China's $174 billion fast-food market, according to Euromonitor, but face a challenge as local firms try to tempt cost-conscious diners with healthy, home-grown fare.

Both companies said they are investigating the issues highlighted in the report and said that switching suppliers will cause some temporary product shortages.

News of the scare spread quickly to diners negotiating Shanghai's lunch-hour rush on Monday.

"For now I won't go to eat at McDonald's or KFC, at least until this whole thing settles down," said Xu Xinyu, 24, a financial services worker, eating at a noodle shop near a McDonald's outlet in downtown Shanghai.

Yet Chinese consumers may already have developed a comparatively thick skin when it comes to food scandals. "Isn't everywhere like this?" asked student Li Xiaoye, 20, eating a beef burger in a Shanghai McDonald's outlet. "I'll keep going because wherever I eat, the issues are all the same."

The incident highlights the difficulty in ensuring quality and safety along the supply chain in China. Wal-Mart Stores Inc came under the spotlight this year after a supplier's donkey meat product was found to contain fox meat. It also came under fire for selling expired duck meat in 2011.

OSI is one of McDonald's key meat suppliers and has a good reputation, according to an industry insider speaking on condition of anonymity. He added the incident highlights the issue firms face enforcing strict processes with local staff.

As well as Yum and McDonald's, OSI listed Starbucks Corp , Japan's Saizeriya Co Ltd, Papa John's International Inc, Burger King Worldwide Inc and Doctor's Associates Inc's Subway brand as clients in China, according to a 2012 press release.

Burger King shares fell 1.6 percent to close at $26.13.

A Starbucks spokesman told Reuters that the company does not now have any direct business dealings with Husi Food.

Burger King, Subway, Papa John's and Saizeriya did not immediately respond to requests for comment. ($1 = 6.2088 Chinese Yuan) (Additional reporting by Engen Tham and Shanghai newsroom and by Lisa Baertlein in Los Angeles; editing by Kazunori Takada, Kenneth Maxwell, Jilian Mincer, Matthew Lewis and Peter Galloway)

Addicted To Inflation

The first step toward recovery is admitting that you have a problem. That goes for political movements as well as individuals.

Read the whole story at The New York Times

Want To Fix Social Security? Start With Giving Women Equal Pay

Closing the gender pay gap would do more than just help working women: It could also help shore up the nation’s finances, a new study suggests.

Making sure women earn equal pay for equal work could trim Social Security’s long-term shortfall by up to a third, according to a study released Thursday by Social Security Works, a non-profit group advocating to protect Social Security. That’s because boosting women's pay would put more money into the program's coffers.

Closing the pay gap between men and women who are the same age and have similar levels of education and hours of work would have generated $447.6 billion in extra income in 2012, according to figures from the Institute for Women's Policy Research cited in the study. Most of that income would have been subject to Social Security taxes, boosting annual revenue for the Social Security Trust Fund by at least $40 billion, said Ben Veghte, the research director of Social Security Works.

Extrapolating such gains over 75 years, higher pay for women could close much of what could be a nearly $10 trillion gap in Social Security's ability to pay benefits by 2087, according to one estimate.

The solvency of Social Security has been a major political issue over the past few years. As more baby boomers retire and start using the fund instead of paying into it, officials are looking for ways to make sure the program doesn't run out of money. Earlier this year, President Obama proposed cutting Social Security benefits in an attempt to strike a budget deal with Republicans. He ultimately withdrew the proposal after it became clear that a "grand bargain" on the budget was unpopular on both sides of the aisle.

Pay equality for women would also give them more money to save for retirement, making it less likely they'll have to rely only on Social Security, or a spouse's benefits, in retirement.

“Unequal pay has had a profound impact on women's economic security, and that includes their retirement security,” Rep. Rosa DeLauro (D-Conn.) said on a conference call with reporters Thursday. “Women live longer and are much more reliant on Social Security because of lost wages over a lifetime.”

DeLauro is a sponsor of the Paycheck Fairness Act, a bill that would make employers give legitimate reasons for pay discrepancies and ban retaliation against workers who talk about their pay. She added that, for millions of women, an extra boost in earnings -- and, ultimately, in Social Security benefits -- could mean “the difference between health and hunger.”

More than 2.6 million women over the age of 65 lived in poverty in 2012, according to an analysis from the National Womens’ Law Center.

The Social Security Works authors also suggested that women (and men) not be penalized for temporarily leaving the workforce to have and raise children. Social Security benefits are based on average earnings over the best 35 years of a career. Leaving the workforce weighs on those average earnings.

The authors back proposals that would give workers credit for something like half the national average wage each month for the years they’re caregiving. That way, when it’s time to calculate their Social Security benefits, these people don’t have several years with a bunch of zeros weighing down their average earnings.

“Instead of having them get an F for those years, they get a C-,” Veghte said.

Reporter Whose Rant Helped Launch Tea Party Gets Put In His Place

The CNBC reporter whose rant helped launch America's tea party movement was told off Monday amid -- what else -- one of his epic rants.

As Rick Santelli shouted from the floor of the Chicago Board of Trade against the Federal Reserve's policies on "Fast Money Halftime Report," CNBC reporter Steve Liesman took him down a peg.

"It's impossible for you to have been more wrong, Rick," Liesman said. "Your call for inflation, the destruction of the dollar, the failure of the U.S. economy to rebound... The higher interest rates never came, the inability of the U.S. to sell bonds never happened, the dollar never crashed Rick, there isn't a single one that's worked for you."

“I wasn’t wrong on inflation," Santelli declared. "I didn’t know policy would be so bad that we’d get no velocity after five-and-a-half years.”

TIME explained Santelli's argument in its deconstruction of the on-screen fight:

By velocity, he basically means that no one is spending money, even though the Fed’s QE program has, in a sense “printed” a lot of it. Santelli has claimed before that he didn’t actually predict high inflation. As Business Insider has pointed out, the record says otherwise.

"Every single bit of advice you gave would've lost people money," Liesman told Santelli. "There is no piece of advice you've given that's worked."

Click here to watch the full CNBC video.

How Inequality Is Hurting Whole Foods

After popularizing luxury groceries for the well-off, Whole Foods is trying to take the concept to the masses. But amid growing inequality and a sluggish recovery, those masses have gone missing.

That could spell trouble for the Austin, Texas-based grocer. Investors have doubts about whether the company can keep up its long track record of steady sales growth, now that it has saturated the upper-middle-class enclaves on the coasts. Its stock price has been pummeled lately, dropping about 30 percent in the past six months.

"They have to expand beyond where they currently are, and that's kind of the concern," said David McGoldrick, a U.S. analyst at the market research firm Euromonitor International. "Are they going to be able to find customers in other parts of the country, where incomes are lower, that are going to be able to spend at Whole Foods?"

Betting on the middle class is risky. As the country continues to split into rich and poor, middle-of-the-road retailers like J.C. Penney Co. and Sears have suffered.

At the same time, retailers that cater to price-conscious customers -- the middle- and lower-income shoppers who have been squeezed by flat wage growth and a flagging economy -- are thriving. Discount grocers like Aldi and Save-a-Lot proliferated during the recovery. Barring a middle-class revival, upper-crust grocers like Whole Foods could have a harder time finding new customers.

"If you want mass consumption, you need a middle class," said Amy Traub, a senior policy analyst at Demos, a think tank focused on boosting low-income Americans.

Not long ago, Whole Foods enjoyed years of same-store sales growth -- an important retail metric measuring the performance of stores open more than a year -- at a relatively high 8 percent. That's because for many years, Whole Foods was more or less alone in offering a wide variety of organic and natural foods.

Shopping at Whole Foods was also part of an "aspirational" lifestyle, something that consumers sought in a more robust economy. For some, the Whole Foods brand has the same cache as Neiman Marcus or other luxury companies, as Michael Pavone, the CEO of food and beverage marketing company Quench, wrote in a 2012 op-ed for Fast Company.

But Whole Foods is becoming a victim of its own success, according to McGoldrick. Thanks in part to the brand's popularity, now everyone wants to eat healthy food. But most customers can't -- or don't want to -- pay a premium to do so. And Walmart, Kroger and other lower-scale grocers are stepping in to offer organic food at affordable prices to meet the demand.

It seems to be paying off: Kroger's stock price recently soared after the company reported first-quarter earnings that beat expectations. The company's CEO projected 12 to 15 percent profit growth over the year. That growth could come at the expense of Whole Foods' push into the middle market.

Forget Whole Foods. Kroger is organic food king. $KR up 4% #premarket on solid earnings. Stock trouncing $WFM YTD. pic.twitter.com/KwIFvw2Pt1

-- Paul R. La Monica (@LaMonicaBuzz) June 19, 2014

Whole Foods has responded by lowering prices and elbowing into new territory. Co-CEO John Mackey recently laid out a plan for future growth that involves expanding from about 350 stores to 1,200 in the next several years and cutting prices even further.

"For a long time, Whole Foods had the field to ourselves, pretty much. That was nice, but we don't any longer," Mackey said. "So, we're adapting to the reality of the marketplace, which is increased competition."

As part of its expansion strategy, Whole Foods is moving into malls, according to Todd Sullivan, a general partner at Rand Strategic Partners. But the company is clustering in shopping centers with higher-end retailers, because lower-end malls are struggling. Middle-class shoppers who once frequented the less upscale places are just now getting back on their feet after the recession. Until they do, all but the nicest malls will probably look like wastelands.

"That's going to be the way it is for a while," said Sullivan.

Whole Foods' price cuts, and its offerings of reasonably priced store-brand and bulk products, haven't yet resulted in a stampede of new customers, according to Sean Naughton, an analyst at Piper Jaffray who covers healthy-living companies. Investors are skeptical about whether the stampede is coming any time soon.

"The perception" is that Whole Foods' groceries are "way overpriced," said Naughton.

Most higher-end retailers are dealing with the dynamic of rising inequality and a shrinking middle class by focusing even more on the small niche of shoppers who can afford their products, said Will McKitterick, an analyst at IBISWorld. Whole Foods is taking the opposite tack, forcing it to strike a balance between keeping its aspirational image and expanding its customer base.

"It's a mystery as to whether it will work," McKitterick said.

Colorado Shops Have Sold About $90 Million Of Recreational Weed

In the first five months of legal retail sales, Colorado dispensaries sold about $90 million worth of recreational marijuana, The Denver Post reported Thursday.

Yet it was still outsold by its medical counterpart, which has been legal in the state since 2000. Medical marijuana brought in about $165 million in revenue during the same January-through-May period.

Six months after the historic first sales of legal weed, the retail side of the industry isn't fully online, but more marijuana dispensaries continue to open each month. As of July 1, over 200 marijuana shops were licensed, according to the Colorado Department of Revenue.

Starting this month, just being a Colorado resident is enough qualification to apply for a retail marijuana business license. Previously, only owners of medical marijuana businesses who were in "good standing" with the state were allowed to apply. The new applicants' shops will begin to open in October.

The shops now in operation have reported gains in recreational marijuana revenue every month since January. In April, they sold about $22 million in retail cannabis statewide. May was another month with over $20 million in sales.

According to a May report from the Colorado Department of Revenue, the state earned about $35 million in taxes, licensing and other fees from both recreational and medical marijuana sales in the first 11 months of the past fiscal year (which ran from July 1, 2013, to June 30, 2014).

In a new report issued Wednesday night, the Department of Revenue found that the demand for retail marijuana is significantly higher than the state had originally projected it would be. The total market demand in Colorado is estimated to be about 130 metric tons per year -- about 121 metric tons for residents and 9 metric tons for visitors.

Gov. John Hickenlooper (D) said earlier this year that he expected combined sales from legal medical and recreational marijuana to reach nearly $1 billion in the first full fiscal year of legal weed, beginning in July, and forecast that the state would collect about $134 million in taxes and fees during that year. Hickenlooper later scaled backed those predictions, saying he expected the state to collect about $114 million in taxes and fees.

American Students Aren't Great With Finance Or Managing Money

American students’ knowledge about managing money is downright unimpressive, according to a study released Wednesday.

The Organization for Economic Cooperation and Development (OECD) study chronicles how students around the world scored on a Program for International Student Assessment (PISA) financial literacy exam in 2012. Of the students from 18 countries and economies who took the exam, American students scored solidly in the middle. On the other hand, students from Shanghai, Estonia and the Flemish Community of Belgium led the pack, while Italy and Colombia’s scores trailed at the bottom.

The results are unsurprising, given how American students have performed on other PISA exams. In a 2012 PISA test on problem solving, American students scored barely above average. They were similarly mid-pack on PISA’s reading, math and science assessments. Students from Shanghai scored higher than Americans in all cases.

According to the OECD report, the exam –- which was taken by approximately 29,000 15-year-olds -- was designed to measure if teens had the financial skills to manage money effectively and make sound financial decisions. Approximately one in 10 American students –- or 9.4 percent -- earned a top score on the exam, while 17.8 percent did not reach a basic level of financial literacy.

Comparatively, an average of 9.7 percent of students in 13 OECD countries earned a top score, while 15.3 percent of students across OECD countries did not reach a basic level of proficiency.

However, the report did not necessarily point to the type of financial education taught in schools as a reason for students' scores.

“Financial education is relatively new if it’s present at all in schools, whether it’s cross curricula or as a specific subject,” said Michael Davidson, the OECD’s head of early childhood education and schools, on a conference call with reporters Tuesday afternoon. “When we look at the relationship between the availability of financial education and the performance of those countries in financial literacy, then you see a very scattered picture. … It’s too early to say whether different models of financial education are effective or not and clearly there are external influences that are important as well.“

The report also cited several external factors that could contribute to higher scores.

Students around the world who have bank accounts tended to perform better on the exam, even compared to students of similar socioeconomic backgrounds. In the United States, 17 percent of the variation in scores is associated with a student’s socioeconomic background -- similar to the OECD average. In America, there was also strong correlation between students’ scores on this exam and previous PISA math and reading exams.

In every country, students who reported higher levels of perseverance tended to perform better.

Interestingly, female and male students had similar scores in most countries. This differs from previous assessments taken of men and women later in life which show that men generally have higher rates of financial literacy.

The graphs below display the new data on gender similarities:

The report builds on previous ideas that American schools are not providing students with the same skills as its international competitors. However, education experts in the past have warned about jumping to conclusions based on PISA results.

“These kinds of studies are really good at describing where we stand and maybe looking at trends,” Jack Buckley, the commissioner of the National Center for Education Statistics, told Education Week of previous PISA results. “They’re not good at all at telling us why. The study design is not one that supports causal inference.”

The South Is Essentially A Solid, Grim Block Of Poverty

The Great Recession and Not-So-Great Recovery have been bad news for most Americans, but some people have suffered more than others. We call those people "Southerners."

North Carolina and a handful of other Southern U.S. states saw the biggest increases in the number of people living in what are known as "poverty areas" between 2000 and 2010, according to a new Census Bureau report. Poverty areas are places where more than 20 percent of the people live below the federal poverty line, which varies by family size. For a family of four, the poverty line in most states is an annual income of $23,850.

Today, 25.7 percent of all Americans live in such areas, up from 18.1 percent in 2000, according to the report. Having a quarter of the nation living this way is a problem: Poverty areas are typically marked by "higher crime rates, poor housing conditions, and fewer job opportunities," the report points out.

This map, created by plugging Census data into the Datawrapper mapping tool, shows the rise was not exactly spread evenly across the country:

Note that Southern states were five of the six biggest gainers. This should not be much of a shock, as Southern states consistently lag the rest of the country in good things like wages, economic mobility and access to health care, while leading it in bad things like poverty, obesity and general unhappiness. Another thing Southern states have in common is Republican political leaders that have spent the past decade shrinking the social safety net.

Bucking the trend, two Southern states, Louisiana and West Virginia, actually saw the number of people living in poverty areas shrink during the decade.

And the region that saw the biggest overall rise in the number of people living in poverty areas between 2000 and 2010 was the Midwest, not the South. That may be because the Midwest had relatively low numbers to start. Its numbers are still relatively low -- though it now has more people living in poverty areas than the Northeast, which fared pretty well during the recession and recovery. As you can see from this Census graph, the South started out with very high rates of people living in poverty areas and got even higher, with nearly a third of all Southerners living in poverty areas:

And this Census map highlights the difference between regions even more starkly. Look at that solid, grim block of poverty:

Supreme Court Rules In Hobby Lobby Case, Dealing Blow To Birth Control Coverage

A divided Supreme Court ruled 5-4 on Monday that closely held corporations cannot be required to provide contraception coverage for their employees.

In an opinion authored by Justice Samuel Alito, the court ruled in Burwell v. Hobby Lobby Stores and Conestoga Wood Specialties v. Burwell that the Obama administration has failed to show that the contraception mandate contained in the Affordable Care Act is the "least restrictive means of advancing its interest" in providing birth control at no cost to women.

"Any suggestion that for-profit corporations are incapable of exercising religion because their purpose is simply to make money flies in the face of modern corporate law," Alito wrote, adding that by requiring religious corporations to cover contraception, "the HHS mandate demands that they engage in conduct that seriously violates their religious beliefs."

The Affordable Care Act contains a provision requiring most employers to cover the full range of contraception in their health care plans at no cost to their female employees. The Obama administration had granted an exemption for churches and accommodations for religious hospitals, schools and nonprofits, but for-profit companies were required to comply with the coverage rule or pay fines.

Hobby Lobby, a Christian-owned craft supply chain store, and Conestoga Wood Specialties Store, a Pennsylvania wood manufacturer owned by a family of Mennonites, challenged the contraception mandate on the grounds that it violates their religious freedom by requiring them to pay for methods of contraception they find morally objectionable. The owners of those companies believe some forms of birth control -- emergency contraception and intrauterine devices -- are forms of abortion because they could prevent a fertilized egg from implanting in the uterus.

Monday's opinion was written narrowly so as only to apply to the contraception mandate, not to religious employers who object to other medical services, like blood transfusions or vaccines.

Justices Ruth Bader Ginsburg filed a dissenting opinion joined by Justice Sonia Sotomayor and mostly joined by Justices Elena Kagan and Stephen Breyer. Ginsburg warned in her dissent that the decision was not as narrow as it claimed to be. "In a decision of startling breadth, the Court holds that commercial enterprises, including corporations, along with partnerships and sole proprietorships, can opt out of any law (saving only tax laws) they judge incompatible with their sincerely held religious beliefs," Ginsburg wrote.

Ginsburg argued that the government has a "compelling interest" in providing no-cost birth control to women. "Those interests are concrete, specific, and demonstrated by a wealth of empirical evidence," she wrote. "To recapitulate, the mandated contraception coverage enables women to avoid the health problems unintended pregnancies may visit on them and their children."

"President Obama believes that women should make personal health care decisions for themselves rather than their bosses deciding for them. Today’s decision jeopardizes the health of women that are employed by these companies."

"We will, of course, respect the Supreme Court ruling," White House press secretary Josh Earnest said Monday, adding that the administration will "consider the range of options available to the president."

Earnest also called on Congress to make sure the women affected still have contraception coverage. "Congress needs to take action to solve this problem that has been created," he said.

At oral arguments in March, the women Supreme Court justices grilled Hobby Lobby's lawyer, former Solicitor General Paul D. Clement, about whether a for-profit company can be considered a religious organization, exempt from certain federal laws, if a majority of its employees hold different beliefs than the company's owners. Justices Sotomayor and Kagan asked whether companies like Hobby Lobby should be allowed to refuse to cover procedures like blood transfusions and vaccines, or to ask for exemptions to things like anti-discrimination and minimum wage laws, if they had religious objections to those policies.

"Everything would be piecemeal, nothing would be uniform," Kagan warned.

But some of the court's conservative-leaning justices asked why the Obama administration had granted religious accommodations to any organizations if the contraception mandate was so critical to public health. "It must have been because the health care coverage was not that important," said Justice Anthony Kennedy, who was generally considered to be the swing vote.

In his concurring opinion, Kennedy said the decision "does not have the breadth and sweep ascribed to it by the respectful and powerful dissent." He said because there is already a mechanism in place to provide a religious accommodation to some organizations, adding another accommodation would not be a significant burden on the government

"In these cases, it is the Court's understanding that an accommodation may be made to the employers without imposition of a whole new program or burden on the government," Kennedy wrote. "As the Court makes clear, this is not a case where it can be established that it is difficult to accommodate the government's interest, and in fact the mechanism for doing so is already in place.

Ginsburg's dissent said that Congress had never intended to allow for-profit corporations to get religious-based exemptions, arguing that if it had, "a clarion statement to that effect likely would have been made in the legislation."

Cecile Richards, president of the Planned Parenthood Action Fund, called the decision a blow to women's reproductive health.

“Today, the Supreme Court ruled against American women and families, giving bosses the right to discriminate against women and deny their employees access to birth control coverage," Richards said in a statement. "This is a deeply disappointing and troubling ruling that will prevent some women, especially those working hourly-wage jobs and struggling to make ends meet, from getting birth control."

Read the opinion here.

Burwell v. Hobby Lobby

Sabrina Siddiqui contributed reporting.