Chipotle Mexican Grill is (NYSE: CMG) E. Disaster will likely become a case study in crisis mismanagement if it has not already done so.
The burrito chain already had a bullet-proof brand in 2015, with average unit sales of $ 2.5 million and a market value of up to $ 23 billion. It was a model for the restaurant industry after it had almost messed up fast food and introduced the fast-casual model with its fresh-food assembly line format
that changed with the 2015 E. coli Outbreak. Food poisoning affected about 60 of their clients across the country, and that, along with a weak reaction and subsequent sales slide, eventually worsened up to two-thirds of the stock price. The outbreak has taken the shine off the former market darling.
Under new CEO Brian Niccol, the stock has risen sharply this year as investors are again optimistic about the prospects of the burrito roll. Stocks rose 78% this year, but this rally was jeopardized by another health shock.
Here's Going Again
On July 31, there were reports that there was another food-borne outbreak, this time at a location in Ohio. More than 100 people were reported ill and Chipotle temporarily closed the restaurant. The news sent stocks up to 7% in a single day as investors feared that the news could cause a subsequent decline in traffic, similar to a similar outburst that closed a Virginia chipotle the year before. However, Niccol had a novel approach to treating the problem, which was then thought to be a norovirus outbreak, but later it was confirmed that Clostridium perfringens was an unsafe temperature
Instead of directly confronting the news to explain or even apologize, Niccol doubled a guacamole promotion offered by Chipotle at the time and extended it by an extra day. In a press release, the company said that July 31st was the biggest summer sales day ever, and thanked its customers by extending the free guacamole promotion by an extra day.
This achieved two things. First, it covered up the negative news about the food poisoning event and, more importantly, signaled that customers just did not care about an incident in a single restaurant. They were busy filling their faces with free guacamole. Chipotle followed up this offer with a free Doordash deal this weekend, announcing that it would be testing bacon, nachos and late nights in several restaurants a week later. This reinforced the idea that the company rewarded customers and improved their offerings.
Since the report on food-borne illnesses, Chipotle stock has now risen by 20%, apparently due to the above initiatives and an analyst upgrade.
Since the news of the outbreak became known, Chipotle has announced further steps to mitigate the risks of another food poisoning. The burrito chain said it is training its entire workforce, about 70,000 employees, for food safety this week, and will test quarterly employees' knowledge of food safety standards.
However, the reaction of the market to the ordeal seems to be overwhelming satisfaction with the company's response to the outbreak as the stock is currently at a post-crisis high. This reaction was significantly different than last year, when the stock fell after the norovirus outbreak and fell below $ 300 even after the company said that revenue growth slowed as well.
Now the fear of investors and customers seems to have disappeared. There are a few possible reasons for this.
Firstly, any customer who is already sensitive to food-borne illnesses has probably stopped eating at Chipotle. The average number of units is still about 20% lower than before the E. Coli outbreak, which is likely to represent customers who have not returned or have significantly reduced their visits. The Chipotle loyalists, who still inhale burritos, are unaffected by food safety issues, or they understand that more than a million people eat in the company's restaurants everyday, so the real risk to them is almost nil. [Steve] The departure of Ells as CEO deprives the company of much of the blame for past incidents since he was essentially the scapegoat. Niccol starts with a neutral vest and is not responsible for earlier outbreaks, so investors can be more optimistic that the problem is resolved.
The lesson seems to be that the company can overcome the kinds of ordinary food safety incidents that often plague restaurants. For example, at McDonald's (NYSE: MCD) about 400 people in 15 states have become sick from eating salads, but most of this news has been ignored because there is no fundamental fear Food Safety has gone to Chipotle. The best thing for Chipotle would be that the financial media would ignore such single-store closings as it does at other restaurants, and that seems justified in light of investor reaction in recent weeks.
Should The Company Experience Another E. In an E. coli outbreak or some of that seriousness, the stock would likely fall and the clients would flee again, but it would appear that the chipotle Finally, investors are immune from the usual food-borne illness risks in the restaurant business.