Food safety issues crushed profits in the fourth quarter.
This year will be all about food safety for Chipotle CMG .
That’s the message that company executives tried to send to investors on its fourth quarter and full year earnings call today as the Mexican food chain grapples with the impact of E. coli and Norovirus outbreaks that have crushed sales.
Co-CEO Steve Ells said the company wanted to be a “leader in food safety” and had put procedures in place that would reduce the risk of further incidence to “as low to zero as possible.”
Chipotle is experiencing what Ells called the “most challenging time” in the company’s history as it deals with the aftermath of its food safety issues. Chipotle reported its first-ever quarter of declining sales, with revenue down 6.8% to just under $1 billion. During the period same store sales declined 14.6% and net income plummeted 44% to $67.9 million.
The restaurant chain managed to eke out a same store sales increase of 0.2% for the year, with revenue up 9.6% to $4.5 billion and net income up nearly 7% to $475.6 million.
Yesterday the Centers for Disease Control announced that Chipotle’s E. coli outbreaks were over. But the company delivered a set back on the call, saying that it had received a federal subpoena for all food safety matters at the end of January, broadening the scope of an investigation that had previously been specific to a single store in California.
On the call executives outlined steps that the company has taken to improve its food safety practices, which Ells said “go well beyond industry standards.” The broad changes in practices may stem from the fact that Chipotle and investigators have not been able to identify the specific cause of the food safety problems. Here’s the rundown:
- High-resolution DNA based testing of fresh produce and meat before it ever makes it into its supply. Ells said that would mean any batch of problematic ingredients would be rejected “well before” it reaches the restaurants.
- Preparing items like tomatoes, lettuce, and bell peppers in central kitchens.
- Blanching ingredients like avocado, citrus, and jalapeños. This step of boiling items for five seconds destroys any microbes on the surface, executives said.
- Marinating chicken and steak after the preparation of other fresh items to prevent contamination.
- Items like cilantro will be marinated in citrus juice for an added layer of food safety.
- Co-CEO Monty Moran also highlighted the company’s new restaurant auditing programs, noting that every restaurant is being audited on a weekly basis and by a third-party vendor every quarter. Managers’ bonuses will be tied to those third-party audits.
- The company is holding a national meeting of all its employees on Feb. 8 for food safety training.
- Chipotle is completing a food tracing system, which will allow the company to track every ingredient in real time.
The company also focused on the steps it would take to get customers back into its stores, such as next week launching the biggest marketing campaign in its history. Consumer awareness of the food safety issue is high, with chief creative and development officer Mark Cumpacker saying that 63% of its customers were aware of the food safety issues.