Can Chipotle survive its foodborne illness outbreaks as once-loyal customers of the Mexican-food chain boycott the restaurant out of fear that their favorite burritos will make them seriously ill?
Or will the once-booming restaurant’s sales plummet to unrecoverable depths?
Earlier in December, Chipotle projected that its fourth-quarter same-store sales would only fall by 8 to 11 percent in the wake of the outbreaks. But then additional norovirus and E. Coli outbreaks hit Boston and the Northwest. Now some Wall Street analysts predict Chipotle’s sales numbers will dip even lower than expected, by at least 12 percent.
“We still think the business ultimately will rebound and believe patient investors can be rewarded in owning CMG, but the lack of visibility related to the timing/trajectory of the recovery prevents us from taking a more constructive near-term stance on the stock at this stage,” wrote David Tarantino of Baird Equity Research.
However, Peter Saleh, with BTIG Equity Research, told Nation’s Restaurant News he still expects same-store sales to decline by 10 percent. Saleh said he believes investors should see the current dip as a buying opportunity.
“While we are frustrated by the continued negative news flow regarding the E. coli outbreak, we believe the company has taken the appropriate steps to guard against future incidents,” he wrote. “We expect there could be some additional sales volatility following the most recent update but believe a pessimistic financial case is already largely reflected in the shares at the current price.”
In just two-and-a-half months, Chipotle’s stock price has plummeted $252.93 – from $750.42 on Oct. 13 to $494.42 by Christmas Eve.
On a Reddit forum, some Chipotle workers and customers expressed concerns about declining sales and empty restaurants:
- “Terrible. We usually sell 10-12k a day this time of year. I’m lucky to get 5,000 in sales.”
- “We use to normally do around 14K a day, and we’re not even in a state that was affected and we’re down to about 5-8K. I think it’s every [Chipotle] taking a hit.”
- “The store I frequent in Seattle never has a line even at peak hours anymore. Doesn’t bother me a bit cuz I can get my post-workout meal in 5 minutes instead of 15 with a line out the door, but it does make me sad that people are kneejerking so hard on an issue that is hardly Chipotle’s fault.”
Once-loyal Chipotle fans deeply concerned
The decline in Chipotle’s sales, along with thinning crowds of patrons, shows Americans are becoming more reluctant to order food from the chain.
A new Reuters/Ipsos poll shows 23 percent of Americans say they are eating at Chipotle less often because they fear getting sick.
Former Chipotle fans have also taken to Twitter in recent weeks to sound off on E. Coli outbreaks, some saying they plan to boycott the restaurant. In early October, 80 percent of Chipotle-related tweets were positive. But by Tuesday, there were 30 percent more negative tweets than positive ones about the chain.
One woman who identified herself as “Lilly” in Los Angeles claimed a visit to her local Chipotle for a popular “burrito bowl” left her seriously ill within an hour of eating.
“I started feeling sick in my stomach with pain, cramps, discomfort,” she wrote at the Consumer Affairs website. “I was almost done with the meal, had a bit left but couldn’t continue eating. I was sweating cold and felt dizzy. … I felt I needed to throw up, so I called for help to the counter person. They saw me pale and sick and brought me near the bathroom, where I fell by the floor with very low blood pressure. The employee that was with me gave me water, brought me inside the bathroom, where I had diarrhea and vomit[ed] several times. It was very scary. I was very weak and shaking. They called the paramedics. … They took me to the hospital where the doctor saw me and confirmed it was food poison[ing].”
Several other alleged customers, many of whom said they were loyal customers who had patronized Chipotle for many years, wrote comments on the Consumer Affairs site indicating they planned to scale back their visits to the restaurant.
“I didn’t finish eating the bowl because something just did not taste right,” reported another person on the site identified as Kiesherra of Newport news, Virginia. “Well the next time, about a month later, I decided to hit up the Chipotle in the Peninsula Town Center in Hampton, VA. The food again tasted a little off, and again I thought it was a fluke. Well a 3rd time, a few weeks ago, at the one in Hampton, was worse. I took two bites and it was HORRIBLE. I then noticed it smelled funny too. I was sooooo pi–ed and I threw away the entire bowl. I haven’t been back since and it use to be one of my favorite ‘treat’ spots.”
514, or 500,000 people sick?
Meanwhile, the Centers for Disease Control and Prevention in Atlanta is investigating five cases of E. coli O26 associated with Chipotle Mexican Grill “with different DNA fingerprints than others in their ongoing multiple state outbreak,” according to Food Safety News.
“The way the market read the latest CDC report was to assume the Denver burrito maker is likely responsible for a sixth outbreak of food borne illnesses since July because CDC found a second E. coli strain, a rare variant of O26,” the report said.
New cases of contamination were reported at restaurants in Kansas and Oklahoma, where E. coli was discovered.
The illnesses from all Chipotle related outbreaks since July now stands at 514, including five sickened in Seattle in July, 234 in Simi Valley, California, in August, 64 in Minnesota in August and September, 58 scattered among California, Illinois, Kansas, Maryland, Minnesota, New York, Ohio, Oklahoma, North Dakota, Oregon, Pennsylvania and Washington starting in October, and 151 in and around Boston starting in December.
In Simi Valley, California, a restaurant worker who had norovirus infected 234 customers and employees. In Minnesota, 22 locations served tomatoes tainted with salmonella and sickened 64 people in August and September. By late November, at least 140 Boston College students contracted norovirus after eating at a popular Chipotle restaurant near campus.
While reports indicate 514 people have been sickened since July, some food-safety experts estimate the actual number of illnesses to be 10 times that number.
The exact source of the problems has been hard to track. Stores have been closed down, supplies tossed, counters and kitchens disinfected and tested and cleared new supplies delivered, chain officials have said.
Chipotle has been busy online, updating its postings and explanations regularly. It cites the “safety of our customers and the integrity of our food supply” as the highest priorities.
“Work on our enhanced food safety program began immediately after reports surfaced at the end of October regarding the E. coli cases in Washington and Oregon,” the company said. “The enhanced food safety program is the product of a comprehensive reassessment of our food safety practices conducted with IEH Laboratories that included a farm-to-fork assessment of each ingredient we use with an eye toward establishing the highest standards for safety.”
Multiple levels of testing are a main component. The company says its food is now safe.
“Any ingredient that may have been linked to the E. coli incident is no longer in our supply chain. All of the illnesses associated with that incident occurred in a time frame from mid-October to early November and no new illnesses have occurred since then. Immediately after reports surfaced of the first E. coli cases, we began working on an enhanced food safety program that will help us become industry leaders in food safety.”
It noted there are some 250,000 cases of E. coli annually in the United States, and many remain unexplained.
E. coli outbreaks are not unprecedented in the fast-food industry. In 2006, Taco Bell suffered sales drops after it had an E.coli outbreak in the Northeast. In 1993, more than 600 people got sick and four children died from food-borne illness from tainted beef at Jack in the Box locations in Washington. Jack in the Box suffered a massive financial blow, with its debt downgraded to junk-bond status, and its sales didn’t begin to recover again until 1995.
‘People could die from this’
The company’s problems have attracted the attention of Bloomberg Business, which reported on Chris Collins’ lawsuit against the company.
The 32-year-old Web developer and photographer from Oregon said he ended up in an urgent care clinic, then an emergency room, before finding out his problem was E.coli.
“The doctor warned him that kidney failure was possible; intensive treatment, including dialysis, could be necessary. His kidneys held up, but it took an additional five days for the worst of Collins’ symptoms to ease and nearly six weeks for him to recover. He still doesn’t have as much physical strength as he used to, and he feels emotionally shaky, too,” the report said.
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Collins also complained of a “snarky” tone on the company’s part.
“I trusted they were providing me with ‘food with integrity,'” Collins told Bloomberg. “We fell for their branding.”
He said the closure notices said “order should be restored to the universe in the very near future.”
“That felt so snarky,” Collins told Bloomberg. “People could die from this, and they were so smug.”
‘It will take some time for traffic to return’
The chain of almost 2,000 locations had reached a market valuation of nearly $24 billion, partly from selling food that is unprocessed, free of antibiotics and GMOs, sometimes organic and sometimes local, Michael Doyle, the director of the center for food safety at the University of Georgia, told Bloomberg.
The following is a Chipotle advertisement that promotes its fresh ingredients:
The report said Steve Ells, Chipotle’s founder and co-chief executive, was on NBC’s “Today” earlier this month apologizing to those who were ill and promising a comprehensive food safety program.
The report noted that the company appears to have paused its growth curve, including a drop-off “among its least frequent customers and its most frequent.”
“That’s more worrying. A small percentage may never come back, or it may take years,” said Mark Crumpacker, the company’s development officer, in the Bloomberg report.
Stephen Anderson, a restaurant analyst for the Maxim Group, said in a report at TechTimes, “Even after the company sounds the ‘all-clear,’ we believe that it will take some time for traffic to return.”
“Chipotle built its reputation with its reliance on fresh, often locally sourced, ingredients. That approach has always been a major branding advantage for the company, but it also makes the task of insuring food safety far more complex, since it means Chipotle has to deal with many different local suppliers, rather than just a few big ones. And this problem has only become more acute as Chipotle has expanded. The company has also always trumpeted the fact that it prepared meals by hand, right in front of the customer. This distinguished it from traditional fast-food chains, with their flash-frozen ingredients assembled and heated up in a kitchen in back. In the wake of the outbreaks, though, the sheer visibility of the food-preparation process could make it hard for customers not to wonder about what the person building their burrito might be transmitting. Even Chipotle’s slogan – ‘food with integrity’ – sounds painfully ironic when people are getting food poisoning at its restaurants.”
Customers sound off: ‘Food poisoning or bad employee hand washing’?
Several Chipotle customers have posted feedback from their experiences at the chain on the website Consumer Affairs, including the following:
- “The restaurant was notably dirtier and dirtier. I actually wrote to them on their website and of course got no response, I also found that the food was consistently cold right after purchasing. Some of the staff was borderline rude, and the food tasted less and less appealing. Guacamole was borderline brown. Another tip off that basic cleanliness is obviously not a priority to Chipotle is the state of the bathroom. I went in once: never again! Rule of thumb is that if the bathroom is dirty, you don’t want to know what goes on in the kitchen” (Lisa of Sebastian, Florida).
- “I was appalled at the Chipotle near my house. When I lived in Washington, D.C., I ate at Chipotle faithfully every week. I had not been to the one near my house in Florida in a while because my husband is not as much a fan as I was. We ordered dinner from the one on PGA Boulevard in Palm Beach Gardens, FL. It was so dirty inside that I wanted to leave. We did order take out (I would not stay in there). … It was a gross experience and I will not return. Very filthy environment in our very nice city!!” (Carol of Palm Beach Gardens, Florida).
- “I got severely ill, was hospitalized and had my appendix removed after eating at a Chipotle location in Portland, Oregon, a few years ago. I called corporate headquarters in Denver just to report my experience. The young lady I spoke with was very rude, short and unsympathetic toward me. I regret not pushing the issue further. Perhaps I might have helped prevent the large outbreak of late in the NW. I will never go back there again” (Niko of Beaverton, Oregon).
- “We ate food from a Chipotle restaurant 3 times during our 29 day visit [to Irvine, California]. I became sick there with diarrhea, and have remained sick since I returned home” (Dennis of South Ozone Park, New York).
- “My husband and I both got severely sick after eating at the Chipotle in North Myrtle Beach. I put in a complaint with the company to only be belittled as if I was lying about getting sick. She told me no one else at the restaurant have reported any problems. I was not looking for anything ‘FREE.’ I would of though liked a little common respect from the company though. It’s OK since I deal with many people in a week and will tell everyone I know of my treatment. I use to eat at Chipotle at least once a week. This was sad to be treated so poorly by the company so called management. This is suppose to be a healthy establishment and thought they might want the feedback but the way I was treated was not necessary” (Deborah of Longs, South Carolina).
- “Tonight May 31, 2015 we stopped at Chipotle located at Virginia Beach Blvd., Virginia Beach, Virginia and ordered a chicken burrito bowl to go for my son. Took it home and he ate it. Within a few hrs of eating it he started to throw up and still is. That was the last thing he had and was fine so there is no question that that chicken bowl was the culprit” (Dario of Chesapeake, Virginia).
- “I just ordered my regular yesterday. White rice, black beans, steak, pico and hot salsa, plus guacamole. I was sick about 3-4 hours later and then threw up 11 times and have had diarrhea since. Has anyone else experienced this?? I’m not sure if it’s food poisoning or just bad employee hand washing” (Laura of Irvine, California).
- “I [went] to Chipotle a month ago in San Mateo, California, and noticed that there was a fly/insect in the lettuce. When [I showed] it to one of your employees, we got the money back. … I have seen two flies/insects in my burrito bowl. I understand that your products are organic and fresh produce, but does that mean they don’t clean it well? I started vomiting after seeing the two insects because at that point I already had some Chipotle. I have taken the pictures of the flies as a proof. Giving back a refund wouldn’t help customers if you don’t serve clean food. There is no point to go to Chipotle when I want to have healthy food” (Honey of Santa Clara, California, who posted an image of the flies in the lettuce).
- “I noticed employees coughing in their hands, not washing them, [and] wiping their face in an open kitchen” (J of Bronx, New York).
- “Both the Chipotle on Route 4 in Fairfield and the one on Route 4 in Cincinnati (within 2 miles of each other) have started cooking their chicken far less than they used to. My wife got a piece of raw chicken that literally made her sick. It’s disgusting how under-cooked their chicken is now at those locations. It doesn’t taste like Chipotle; the texture tastes like a tofu burrito. Chipotle was one of my favorite restaurants for 10 years, but now the thought of going there makes me sick” (Kevin of Fairfield, Ohio).
- “I was [at] this particular place (Woburn Ma.) 5/3/15. As you know is open kitchen so I could see the mess, disgusting floor in the kitchen” (Ricky of Lowell, Massachusetts).
- “As I watched for the 20 minutes while on line, 2-3 food prep guys in the back DID NOT WEAR GLOVES and made the rice, adding cilantro, etc. They directly touched the rice, pushing them from the big bowl into the rectangular containers for the front slots. As it turns out, one of the 3 was the manager, who later came to the front line to ‘help out’ without gloves again. I then spoke to this manager to remind him gloves should be wore by the back guys as well as front servers. He said, ‘Only the front servers need to wear gloves!!!’ So, the gloves are for show! What’s the point of the front servers wearing gloves if the back food preparations people are not and their facial hairs are not covered either? The only reason customers don’t see the dirty is the nature of the wildly mixed bowl/burrito wrap of slop! What a dirty place!!!” (Wendy of Jericho, New York).