McDonald's China Food Scare: Company's Japan Unit May Sue Supplier Of Tainted Meat

It also said it would consider seeking damages from the supplier.

The Japanese unit of the world's biggest hamburger chain immediately switched to alternative chicken supplies both in China and Thailand after the scandal broke last week.

But days later it narrowed its sourcing to two existing suppliers in Thailand due to Japanese consumers' widespread distrust of food originating in China.

McDonald's Japan had forecast an operating profit of 11.7 billion yen ($115 million) for the full year to Dec. 31, up 1.5 percent from 2013, and net profit of 6 billion, up 17 percent.

For the six months to June 30 it reported a 50 percent plunge in operating profit to 3.5 billion yen and a 59 percent drop in net profit to 1.85 billion yen.

It also said on Tuesday it was considering sourcing some meat from Brazil. Chief Executive Sarah Casanova said that while its Thai suppliers had enough capacity to handle Japanese demand, the company needed a contingency plan.

Casanova said McDonald's Japan would also begin providing more information on the country of origin and processing for its ingredients and step up inspections of suppliers.

The Shanghai Husi meat scandal has flared up just as McDonald's Japan is scrambling to reverse two straight years of falling sales, including by offering more chicken-based items to expand its menu.

The company has said previously that the sourcing switch could cause many of its 3,100-plus stores to run out of chicken products.

In withdrawing its full-year profit guidance, McDonald's Japan said it was unclear how much it would suffer.

"We are not able today to assess the extent of the impact on our business," McDonald's Holdings, held 49.9 percent by McDonald's Corp, said in a statement.

An executive said sales were down 15 percent to 20 percent on a daily basis compared with original projections.

Last week, McDonald's Corp (NYSE:MCD) reported a bigger-than-expected fall in quarterly profit as established restaurants in the United States and Europe also suffered sales declines.

McDonald's Japan has been under attack from the country's ubiquitous convenience stores, which have attracted consumers with cheap, freshly brewed coffee, seating areas and other novel products and services. ($1 = 101.9300 Japanese Yen) (Reporting by Chang-Ran Kim; Editing by Chris Gallagher and Alan Raybould)