How Chipotle Can Recover From E.Coli Outbreak
— -- Chipotle's reputation has taken hits in recent weeks and the fast-food chain may have a long road ahead in winning back customers.
The Centers for Disease Control and Prevention (CDC) said Monday it is investigating another outbreak of E.coli at Chipotle restaurants in Kansas and Oklahoma.
Andrew Charles, an analyst at Cowen and Company, wrote in a note to investors today that he believes the most recent E.coli outbreak "poses risks" to Chipotle's fourth-quarter sales. Cowen previously downgraded Chipotle's stock on Dec. 7 to "market perform" from "outperform" because its sales were "far more impacted" than expected from previous outbreaks.
"In addition, news of the separate E.coli strand should undoubtedly prolong the turnaround as the company planned to intensify marketing efforts to regain brand trust once the CDC closed the investigation, which is still ongoing," Charles wrote.
Five people became sick between Nov. 18 and Nov. 26 in the latest outbreak, according to the CDC. The affected individuals had all eaten at Chipotle the week before the symptoms surfaced.
JPMorgan downgraded Chipotle to “neutral” from “overweight” today. Analyst John Ivankoe wrote in a note, “At this point, even rational and informed consumers could potentially be given reason to pause when choosing Chipotle over the plethora of fast casual competition in the marketplace.”
Ivankoe said Chipotle’s management team “seems to be scrambling for answers.”
Chipotle can regain consumer trust once the company traces the source of the outbreak, according to Sam Oches, editor of QSR Magazine. Chipotle's stock has fallen 30 percent from its high of $757.77 in August.
"People want to be cautious because if they haven’t traced the source of E.coli, the problem could still be out there," Oches said. Oches added that Chipotle should be transparent about its safety precautions to reassure customers that this doesn't happen again.
Chris Arnold, a spokesman for Chipotle, told ABC News in a statement, "We have indicated before that we expected that we may see additional cases stemming from this. Since this issue began, we have completed a comprehensive reassessment of our food safety programs with an eye to finding best practices for each of the ingredients we use. We are now in the process of implementing those programs, including high resolution testing of ingredients, end of shelf-life testing of ingredients, continuous improvement in the supply system based on testing data, and enhanced food safety training for all of our restaurant teams. With all of these programs in place, we are confident that we can achieve a level of food safety risk that is near zero."
Chipotle has been linked to an E.coli outbreak that has sickened 53 people in nine states. The first case was reported Nov. 10. Chipotle was also forced to close a restaurant in Boston where public health officials say norovirus was discovered after more than 120 Boston College students reported gastrointestinal symptoms. Chipotle said these cases were unrelated to the E.coli outbreak.
Oches said "plenty" of restaurants have recovered from food safety crises. One major incident included hundreds who fell ill and four children who died from an E.coli outbreak at Jack in the Box locations in multiple states in 1993.
"It was far, far worse than what Chipotle is facing now," Oches said.
