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Wal-Mart to Triple Spending on Food-Safety in China -- 2nd Update


By Laurie Burkitt

BEIJING-- Wal-Mart Stores Inc. said Tuesday it will triple its spending on food safety in China to 300 million yuan ($48.2 million) by the end of 2015 amid scrutiny of its operations by officials there.

Wal-Mart's chief compliance officer for China, Paul Gallemore, said the Bentonville, Ark., retailer is increasing its food-safety investment from the 100 million yuan it previously pledged to spend between 2013 and 2015. The funding will go toward additional food testing and supplier audits, Mr. Gallemore said, adding that Wal-Mart will expand DNA testing on meat products this year. Wal-Mart was alerted to the need for DNA testing in January after it found fox meat labeled as donkey meat at stores in China.

Wal-Mart is also adding mobile testing labs that can travel from store to store to check products and is investing in technology such as iPads to help individual food safety training for employees, Mr. Gallemore.

"We see this as our future home market," said Mr. Gallemore, adding that the company sees China as a long-term growth market.

China's regulators have fined Wal-Mart$9.8 million over the past three years on such claims as selling poor- quality products and using misleading pricing.

Wal-Mart executives said in an interview with The Wall Street Journal earlier this year that they believe the responsibility of ensuring food safety is unfairly falling on retailers rather than manufacturers. They also said that they had been meeting with officials and urging them to add inspectors at manufacturing facilities and meat-processing plants.

Mr. Gallemore said Chinese officials have signaled to the retailer that they are working to shift the focus to manufacturers, though it hasn't yet seen evidence of more inspectors at suppliers.

"We have the ear of the government," he said. He added that store inspections by regulators have remained steady in the past few months but fines have slowed. Around 4% of Wal-Mart's 7,000 suppliers in China have failed testing and audits in recent years and Wal-Mart has moved to cut them, he said.

Wal-Mart has previously announced plans to ratchet up its testing and inspections. Food testers at Wal-Mart distribution centers in China check more than 600 products daily to catch flaws before products such as meats and vegetables are sent out to stores, according to the company.

The Chinese government has faced rising pressure from the country's growing consumer class to clean up the food supply. In a survey last year of more than 3,200 Chinese people, 38% said food safety is a "very big problem," up from 12% in 2008, according to Pew Research.

Experts say the government has improved food safety since 2008, when six infants died and more than 300,000 fell ill because dairy producers added the industrial chemical melamine to watered-down milk.

Wal-Mart announced in May plans to invest 580 million yuan to remodel 55 of its 400-plus stores in China and to roll out 30 new stores and some additional distribution centers this year in the country as a part of three-year growth plan announced in October.

China is an important growth market for Wal-Mart. The retailer is No. 3 in market share in the country, according to the most recent data from market research firm Euromonitor International. That's behind No. 2 China Resources Enterprise Ltd., which operates 4,100 stores under 10 different retail brands, and No. 1 Sun Art Retail Group Ltd., a joint venture between Taiwanese conglomerate Ruentex Industries Ltd. and France'sGroupe Auchan SA.

Write to Laurie Burkitt at laurie.burkitt@wsj.com

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