But Wall Street warns of a tough slog
Chipotle Mexican Grill restaurants cmg is hoping that a little more prep work will help it will win back customers frightened by a devastating E.coli outbreak. Among the food safety enhancements the burrito chain is banking on: Having cheese arrive at its restaurants pre-shredded cheese. Chipotle also said it will begin chopping its tomatoes and cilantro offsite.
Adding to Chipotle’s woes, the U.S. Centers for Disease Control and Prevention said this week that it was probing a potentially different outbreak of E.coli also linked to the restaurant. That has set back the company’s efforts to start recovering from an outbreak of the bacteria that in the autumn sickened more than 50 customers in nine states, and led to a number of stores being closed temporarily at one point. As if that weren’t enough, an outbreak of norovirus at a Boston store that sickened about 120 people. It was unrelated to the E. Coli outbreak, but it created more bad headlines.
The food safety scare led the company in early December to warn investors that comparable sales may fall as much 11% this quarter, and shares have fallen 35% off their all-time highs earlier in 2015 since the crisis. YouGov Brand Index, which measures customer attitudes, recently reported a sharp decline in customers’ perception of Chipotle.
The company, which has touted its use of fresh produce and meats rather than frozen items as a differentiator with other quick-service restaurants, is now seeing that approach come back to bite it. In fact, in its annual report, published well before the E.coli crisis, Chipotle warned investors that because of that way of preparing food, “We may be at a higher risk for food-borne illness outbreaks than some competitors.” Also worringly, Chipotle said those risks could get higher as it expands its catering business, one of the company’s biggest growth strategies.
“The plans we are now putting in place are the result of a comprehensive reassessment of all of our food safety and handling practices throughout our system–from farms to restaurants,” Chipotle spokesperson Chris Arnold told Fortune in an e-mail on Wednesday.
Chipotle’s efforts are about mitigating risk, so the company is taking extra measures to kill microbes in fresh meats and produce, and more training for restaurant workers. The restaurant chain says the plan, once entirely implemented, “will reduce the risk of contamination to a level near zero” and make Chipotle a leader in food safety too. Other steps will include macerating onions with lemon or lime juice to kill germs, and taking 60 samples from every 2,000 pounds of steak before the meat goes to stores. The Associated Press earlier reported these changes.
The company initially blamed the media and the CDC for some of the scope of the crisis, but then turned to a charm offensive that included full page ads of apology in major newspapers last week. But the public relations crisis is showing little signs of abating. On Wednesday, Bloomberg BusinessWeek published a cover story on Chipotle’s travails, with an illustration of a burrito vomiting.
Meanwhile, Chipotle has taken to Twitter to soothe consumers’ fears:
RBC Capital Markets analyst David Palmer on Wednesday lowered his price target for Chipotle’s stock, writing in a research note, “Recent norovirus headlines and this week’s reports of a new strain of E. coli have kept Chipotle in the headlines, likely leading to a deeper and longer sales issue.” He added: “Frustratingly, there is no good precedent for Chipotle’s food safety issues.”