For a restaurant chain, closing down for lunch wouldn't typically be viewed as good for business. In the case of Chipotle Mexican Grill (CMG), the decision could be too little, too late, or the start of a turnaround.
Attempting to recover from a series of E. coli outbreaks that sickened dozens of customers in multiple states, while battering sales and profits, Chipotle on Monday shut down its 2,000-plus restaurants for several hours to update its 50,000 employees on its food-safety plans.
The company said it would spend up to $10 million on a program to help suppliers maintain food-safety standards. It also offered customers who texted the promise of a coupon for a free burrito. That's a tiny fraction of the $10 billion in market capitalization Chipotle has shed since the E. coli crisis began.
The offer may or may not lure back customers who've refrained from eating at Chipotle in recent months, particularly given "it's a competitive environment, and everybody else is trying to get those customers, too," said Bill Fahy, vice president and senior credit officer at Moody's Investors Service, referring to moves by rivals that on Monday featured competing offers.
The approach of publicly shutting down for a chunk of a day proved effective for Starbucks (SBUX) back in 2008 when the coffee chain orchestrated the closing of 7,100 U.S. stores for a three-hour retraining session as it dealt with sluggish sales.
"It set the tone for how to deal with lost sales and a declining customer base," said Christopher Muller, a professor at Boston University's School of Hospitality. That said, Muller does not believe the tactic will have the same positive effect for Chipotle. As he put it: "Years from now this will be case study in how not to manage a crisis."
In Muller's view, Chipotle would have been better served taking a page from the playbook of cruise ship operators: "Now, after a first outbreak, they pull into port, send everybody home and clean the ship from top to bottom with television crews watching them do it," he said. "Assume anything is causing it and get rid of everything."
As soon as Chipotle had multiple E. coli cases in multiple states, Muller said it should have temporarily shut all of its restaurants to clean them from top to bottom, while discarding everything and telling customers "when you come back, we'll have the cleanest restaurants with the freshest food in the entire country."
Since five Chipotle customers became ill in Seattle in July, there have been at least six outbreaks in as many months, with more than 500 people sickened after eating at Chipotle restaurants in the latter half of 2015.
The U.S. Centers for Disease Control and Prevention recently ended its probe into two E. coli outbreaks that sickened at least 60 Chipotle customers in 14 states without being able to determine the source of contamination.
"When you have a restaurant company and an incident like this, consumers step back and wait to see what happens. You can see that in their same-store sales numbers" (sales at stores open a year or more), which declined 30 percent in December, said Moody's Fahy. "A food-borne illness is one of the most serious things a restaurant can have."
Chipotle's move comes a day before the company is scheduled to report earnings. In January, it said sales dived nearly 15 percent in the fourth quarter.
It also disclosed last month that it had been served with a subpoena in a federal grand jury investigation in California following a norovirus outbreak that sickened more than 200 workers and customers during the summer. A Chipotle restaurant in Boston closed for weeks in December after a norovirus outbreak made more than 140 Boston College students ill.
"The reality is, Chipotle may have overpromised," Clark Wolf, a food industry consultant, said of the company's positioning itself as a purveyor of fresh and healthy food. "We have a right to expect generally safe and wholesome food. We do not have the right to expect absolutely safe food."
Given Chipotle shares have fallen more than 40 percent since its E. coli troubles began, Muller believes the the company's board of directors will have little choice but to install new senior management before the end of the year. "This is going to be like Apple in the 1990s, when Steve Jobs was forced out," he said. "This is when the CEO and the president leave."
On Monday, shares of Chipotle fell another $15.14, or 3.3 percent, to end at $445.