Chipotle’s biggest strength is slowly turning into its biggest weakness. For years, the fast casual chain has been winning over customers and investors with the promise of healthy food and quick service. But with the recent E. coli outbreak, sales have fallen off, and its stock price has plummeted. This has put Chipotle into a hole that will take a long time to climb out of.
At least 52 people in nine different states have become ill because of the outbreak. It has been particularly difficult for Chipotle to pinpoint the source of the contamination because of its complex supply chain that includes many small and independent farmers.
This supply chain has previously led to ingredient shortages, as well as some inconsistencies between restaurants. Now, it is leading to questions regarding food safety.
The news for Chipotle has been getting worse, as a location in Boston was temporarily closed recently, after several students of Boston College became sick after eating there. Some of the students who became sick are members of the school’s men’s basketball team. It is still unknown if this instance is related to the widespread outbreak of E. coli.
Brand consultant Allen Adamson said, “It strikes deeper at their brand because so much of their story is based on the quality of their ingredients. This can clearly do long-term damage if they don’t get it under control.”
Since the E. coli outbreak, sales for Chipotle in the month of November fell by 16%. This forced Chipotle to revise its earnings forecast for 2016 and announce a $300 million stock buyback in order to prevent a further decline of the company’s share price.
Over the past four months, company shares have declined by 22%. This represents the single worst performance among restaurant companies in the Standard & Poor’s 500 index. After the Boston College incident, shares fell by an additional 5.6%.
While many other restaurants have had health scares in the past, few have been as adversely affected as Chipotle. The company’s entire business model hinges on its healthy, sustainable and safe perception. If that disappears, Chipotle may as well close up shop.
Needless to say, Chipotle has put itself in quite a hole. It will be a long time before the company can fully repair its reputation and make a complete recovery. But if Chipotle sticks to its principles and avoids mistakes and mishaps, there’s no reason that it can’t rebound. Chipotle has a long road ahead, but it starts now.
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