With its stock price in the toilet, its fourth-quarter earnings dwindling, and more of its customers becoming outbreak victims, Chipotle Mexican Grill decided last week was a good time to announce a new food safety initiative.
Believe it or not, there is precedent for that.
Today is not as dire a time for Chipotle as two decades ago was for Jack in the Box when that fast food restaurant chain brought on Dave Theno as vice president and chief food safety officer. At that time, Jack in the Box was well-known for causing kidney diseases and deaths by feeding kids undercooked contaminated hamburgers. Its stock was tumbling, and Jack was teetering on the verge of bankruptcy.
This week, with an expanding E. coli outbreak now involving restaurants in nine states and with 52 people sickened, Chipotle took a page out of Jack’s history book by bringing in a food safety czar from the outside.
“While Chipotle’s food safety practices were already well within industry norms, I was asked to design a more robust food safety program to ensure the highest level of safety and the best quality of all meals served at Chipotle,” said Dr. Mansour Samadpour, chief executive of IEH Laboratories and Consulting Group.
Known by many in the food safety industry simply by his first name, Mansour may be better known at the time of his appointment as Chipotle czar than Theno was when he was brought on by Jack in the Box.
Mansour said Chipotle adopted his food safety plan for the 1,900-plus restaurants of the Mexican fast-casual food chain “without any modification.” He promised to eliminate or mitigate “risk to a level of near zero and will establish Chipotle as the industry leader in this area.”
Whether naming a food safety czar marks the beginning of a turnaround for Chipotle remains to be seen. However, the strung-out E. coli outbreak is pounding the Denver-based franchise known as much for its politics as its food.
After three more states — Illinois, Maryland, and Pennsylvania — added seven cases to the outbreak, bringing the total number of illnesses to 52, Chipotle’s own financial experts said its fourth-quarter earnings previously pegged at $4.06 per share were now expected to fall within the $2.45 to $2.85 range.
The reason for the decline is Chipotle’s comparable unit sales are looking to be off from 8 to 11 percent because E. coli outbreaks give consumers pause. These announcements were made after hours on Friday, a day that Chipotle continued to see its stock hammered.
On a day when the overall market as measured by the Dow Jones Average was up 370 points, or more than 2.1 percent, Chipotle’s stock was down 1 percent during the day and then experienced a further decline of 7.7 percent after hours.
Chipotle is also not helped by the fact that the actual source of the contamination remains a mystery. Thousands of food samples have yet to turn out any “smoking gun.” With the illnesses showing the outbreak strain now spread across nine states, the responsible ingredient has likely spread nationwide.
In bringing Samadpour in from the outside, Chipotle made it clear that it’s been working on the problem ever since the end of October when the E. coli outbreak was first associated with 11 of its restaurants in Oregon and Washington state.
And while the U.S. Centers for Disease Control and Prevention (CDC) recently added more illnesses and states to the outbreak, the onset of those illnesses also appears to be in the Oct. 13 to Nov. 7, 2015, period.
Chipotle was founded 22 years ago in Denver by Steve Ellis, its current co-chief executive, who is somewhat of a “rock star” in the restaurant business for his innovations in the so-called “fast casual” sector. Its marketing shop in Denver has created a focus on “food integrity” to promote the Chipotle emphasis on local and organic.
Perhaps Chipotle is making some realities clear — like the fact that seasons for buying local produce are often too short for a national chain. In light of such facts, the company is looking to Mansour and his Seattle-based IEH Laboratories to “identify opportunities to enhance food safety practices throughout its operations – from the farms that supply its food to its restaurants that prepare and serve it.”
This comprehensive “farm-to-fork assessment” of each ingredient Chipotle uses will keep an eye toward establishing the highest standards for safety.
Specifically, Chipotle said the program components include:
- Implementing high-resolution testing of all fresh produce in which a series of DNA-based tests will ensure the quality and safety of ingredients before they are shipped to restaurants, a testing program that far exceeds requirements of state and federal regulatory agencies, as well as industry standards.
- Initiating end-of-shelf-life testing where ingredient samples will be tested to ensure that quality specifications are maintained throughout the shelf life of an ingredient.
- Pursuing continuous improvements throughout its supply chain using data from test results to enhance the ability to measure the performance of its vendors and suppliers.
- Enhancing internal training to ensure that all employees thoroughly understand the company’s high standards for food safety and food handling.
Ellis says he started with “classic cooking techniques” and “fresh ingredients” and is working “harder than ever to ensure that our food is safe and delicious.” The way this gets depicted, however, is that, in the future, Chipotle food will be safer but less local because smaller producers cannot handle added costs, such as DNA testing.
Since the outbreak, Chipotle has lost about one-fifth of its stock value — about $2 billion just evaporated as per-share values, which hit $750 just before people started getting sick, dropped to just under $561 today. How long will it take for Chipotle to recover that market capitalization?
I wish I knew. I do know there is also a schadenfreude factor at play as Chipotle’s marketing approach is not popular with everybody, especially in rural America. Lots of people are going to be watching to see if these Mexican restaurants fare as well after Mansour as Jack in the Box did after Theno.
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