(Updates with analyst comment in fourth paragraph.)
Oct. 13 (Bloomberg) -- Chinese police arrested two Wal-Mart Stores Inc. workers in Chongqing and detained 25 others in a pork mislabeling investigation that has temporarily closed 13 of the retailer’s stores in the southwestern city.
In addition, seven people are confined to their homes and three have been released on bail in the case, the official Xinhua News Agency said yesterday evening, citing unidentified police in the municipality of 32 million people. The retailer has confirmed that some of its employees were detained and said it’s cooperating with the investigation.
Wal-Mart was fined earlier this week after authorities said it mislabeled ordinary pork as organic, adding to 21 cases of false advertising and sales of expired or uninspected food by the company since opening in in the city in 2006. China has increased scrutiny of food retailers after cases including the sale of melamine-tainted milk and reprocessed cooking oil.
“Wal-Mart has a record of other incidents related to its credibility in China and not in Chongqing alone,” Jason Yuan, an analyst at UOB Kay Hian Holdings Ltd. in Shanghai, said by phone. “The latest incidents added even more pressure on Wal- Mart and drive consumers to its competitors.”
Some Employees Detained
Wal-Mart China has no comment on the cause of the alleged labeling problems, Anthony Rose, a spokesman in Hong Kong for the world’s largest retailer, said in an e-mail. Rose confirmed earlier this week that some Wal-Mart employees had been detained.
Wal-Mart’s Asian Chief Executive Officer Scott Price told investors yesterday that the store closures would not have a “material impact” on earnings in China. Wal-Mart had $7.5 billion annual revenue in China, where it has 329 stores and 107,000 employees, Price said March 30.
“This issue is restricted to Chongqing and does not have a bearing on any of our other stores in China,” Wal-Mart spokesman Rose said in an e-mail today.
The two arrested in the pork mislabeling investigation are the vice general manager and the director of the fresh produce department at Wal-Mart’s Jiulong Square branch, according to a report by the Chongqing Daily newspaper that was posted to the website of the Chongqing Administration of Industry & Commerce.
An anti-counterfeiting task force is seeking arrest warrants for the 25 detained employees, the newspaper said, citing an unidentified official from the force.
In the pork-labeling incident, Chongqing fined Wal-Mart 3.65 million yuan ($574,000), five times the 730,000 yuan that the company’s stores in the city made from selling the meat over 20 months, according to a statement on the city’s website. The government will also seize the 730,000 yuan, it said.
Tainted milk powder, banned additives in pork and buns dyed with chemicals have fueled food-safety concerns in China and spurred the government to pledge greater protection for consumers.
Six children were killed and thousands were sickened by melamine-tainted dairy products in 2008, prompting the government to execute two people involved in the scandal and form a food-safety commission led by Vice Premier Li Keqiang.
“Foreign supermarkets get targeted more for this,” said Paul French, founder of Shanghai-based market research company Access Asia. “I am sure Chinese supermarkets do it too but they have a level of protection at the moment from the government that does not want too many scandals among local food-related companies after the bad formula, tainted milk and endless scandals.”
Bentonville, Arkansas-based Wal-Mart, with sales of $421.8 billion last year, entered China in 1996.
--Jing Yang, jiang jianguo, with assistance from Matthew Boyle in New York and William Bi and Tian Ying in Beijing. Editors: Nicholas Wadhams, John Liu
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