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Chipotle Mexican Grill: Quality at Stake |
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| In 2015, a series of foodborne illnesses caused by repeated outbreaks of E. coli, salmonella, and norovirus were reported from 11 Chipotle restaurants in Washington and Oregon.
In September 2015, more than 60 customers fell ill after eating at Chipotle’s Simi Valley Towne Center location at Ventura County. While investigators were not able to determine the exact reason, it was believed that an outbreak of norovirus was responsible. “We may never know what caused it in the end. We’re focused on making sure there are no other illnesses going forward,” said Mike Byrne of the Ventura County Environmental Health Division. |
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| Recurring outbreaks of E. coli, salmonella, and norovirus at various Chipotle stores not only affected the company in the form of declining sales and market valuation, but also its brand image. Analysts raised questions about the company’s supply chain fundamentals, in-house training, and food safety practices. While many other restaurant chains had faced a spate of food-borne illnesses, Chipotle’s problems were far more complex due to the scale and variety of the problems. Analysts were of the view that merely using ingredients like organic vegetables, responsibly raised pork, or antibiotic-free chicken would not be enough if they weren’t safe for consumption. In its 2013 and 2014 annual reports, Chipotle acknowledged that it might be at higher risk for such outbreaks compared to its rivals as it used fresh produce and meats and used traditional methods of cooking rather than automation... |
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| Chipotle took various initiatives in an effort to recover from a spate of disease outbreaks – including E. coli, salmonella, and norovirus. The company took aggressive steps to rebuild its image and strengthen its food safety practices. “Since the 2015 food poisoning outbreaks, Chipotle has taken major steps to improve food safety at every level of the supply chain,” said Steve Kronenberg, an attorney specializing in food safety issues. |
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| Notwithstanding all these initiatives, on July 25, 2017, Chipotle’s shareholders filed a class-action lawsuit alleging that the company had misled them into thinking that its food-safety issues had been resolved in 2015, whereas the new incidents with the mice and the norovirus outbreak proved that Chipotle’s food-safety issues were an ongoing problem. “While norovirus at a single location is not overly significant on the surface, we believe there is greater uncertainty now. There is a reasonable probability that media coverage will outweigh the severity of the incident and create renewed same-store sales weakness,” said Andrew Strelzik, analyst at BMO Capital Markets. Moreover, some analysts felt that Chipotle’s communications following the crisis had been far from effective. .. |
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Exhibit I:Chipotle’s Profit Margin Vs Other Major Chains
Exhibit II: Chipotle’s Share Price
Exhibit III: Chipotle’s Selected Financial Data
Exhibit IV: A Timeline of Chipotle’s Five Outbreaks in 2015
Exhibit V: Chipotle’s Rapid Growth
Exhibit VI: Chipotle’s Food Safety Procedures |
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