Chipotle should rebound -- the question is when
Since launching in 1993, Chipotle Mexican Grill (CMG) has emphasized providing customers with what it calls "Food With Integrity," which the fast-growing restaurant chain defines on its website as "sourcing the very best ingredients that we can find." But that recipe for success is taking a beating amid outbreaks of foodborne illnesses that have sickened more than 100 people in nine states.
Same-store sales at Chipotle fell 16 percent in November after the company was forced to close 43 outlets due to suspected cases of E. coli linked with the restaurants. Chipotle estimates that the sales, which measures activity at locations open for at least a year, will plunge between 8 percent and 11 percent in the current quarter, according to a regulatory filing.
Chipotle said Tuesday that 80 Boston College students who became ill after eating at a local restaurant may have contracted nororvirus, which the Centers for Disease Control and Prevention says is the leading cause of acute gastroenteritis in the U.S.
When customers lose faith in the quality of a restaurant's food, regaining that trust isn't easy. Yum Brands (YUM), the parent of KFC, Taco Bell and Pizza Hut, recently decided to spin off its China business, which had been hurt by food-safety scares in the world's most populous country. Some Wall Street analysts say it could take several more years for the company to recover from the negative publicity.
"The Yum situation had larger implications for the trust factor of Chinese consumers' view [of] an American brand," said Darren Tristano, president of food research firm Technomic, by email. "Chipotle has built great trust with American consumers as an American brand, and should have a shorter path to consumers regaining their trust."
Chipotle shares have fallen about 15 percent since the E. coli reports first surfaced. Some experts have found fault with how the chain, which is ratcheting up its food-safety standards, has handled the crisis.
"They need to communicate with consumers everything that they are doing to restore confidence in the brand," said Steven Fink, a crisis communications expert who has advised other restaurant operators faced with a disease outbreak.
The outbreak represents a rare setback for Chipotle, whose shares have surged more than 128 percent over the past five years. The chain has more than more than 1,900 locations in the U.S, along with stores in Canada, the U.K., Germany and France. It has also been lauded in the business press as one of America's most admired companies.
"Most of Chipotle's customers will forgive them," Tristano predicted. "To regain the trust of others, they will need to be more diligent and proactive in their strategies to maintain stronger practices to avoid food safety issues and E. coli within their supply chain."