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Chipotle plans $50 million ad blitz amidst expanded federal criminal investigation

Characterizing a string of foodborne illness outbreaks as an “unfortunate set of events,” Chipotle Mexican Grill’s founder Steve Ells reported the chain’s net income dropped 44 percent in the last quarter of 2015.

Ells’ co-CEO Montgomery Moran revealed more bad news yesterday during the Denver company’s quarterly earnings conference call — the Department of Justice is expanding its criminal investigation of the chain that was spurred by a norovirus outbreak at a Simi Valley, Calif., location.

Chipotle founder and co-CEO Steve Ells

Founder and co-CEO Steve Ells posted this photo of himself with a letter to consumers on the Chipotle website in December. The chain is setting up a new website, set to launch later this month, dedicated to its food safety efforts.

“We had anticipated that the investigation might broaden into a more national investigation, and last week, we received a new subpoena replacing the one we had announced in early January,” Moran said.

“The new subpoena requires us to produce documents and information related to company-wide food safety matters dating back as far as Jan. 1, 2013.”

A spokesman for the U.S. Attorney’s Office for the Central District of California declined to comment, citing confidentiality policies related to open investigations.

In January six high school students and one of their parents filed a civil case in federal court seeking class action status to represent victims of the Simi Valley outbreak, which occurred in August 2015 and was one of six foodborne outbreaks linked to Chipotle restaurants from July through December last year.

The civil suit claims Chipotle allowed a kitchen manager to work for two days while sick with norovirus, infecting at least 18 employees and 234 customers.

A number of Chipotle customers across the country who were sickened in the six outbreaks in the second half of 2015 have filed civil suits seeking damages from the restaurant chain.

The cases could take years to resolve, but Chipotle is already feeling their impact. Among the financial facts reported to investors are increased insurance costs going forward.

Another cost that will cut into stockholders profits this year is a $50 million marketing and promotion campaign during the first quarter. The consumer ad campaign won’t discuss food safety practices or the outbreaks.

Don’t look back

Going forward was the predominant theme during the financial report. Much of the hour-long conference call Tuesday was spent on descriptions of the chain’s new food safety procedures. Those include using centralized kitchens for the washing and chopping of tomatoes, lettuce and bell peppers.

And while Ells and the other Chipotle executives repeatedly referenced “welcoming customers back,” the founder did not include those customers when he summed up the goal of the new food safety efforts.

“… with our enhanced food safety program, we are poised to emerge stronger than ever before,” Ells said. “Ultimately, we believe that this is what is best for our company and our employees and our shareholders.”

Boosting the Chipotle executives’ confidence was a Monday update from the Centers for Disease Control and Prevention that declared the end of two E. coli outbreaks linked to the chain in November and December. Those outbreaks sickened 60 people across 14 states.

The CDC reported the root cause of the outbreaks has not been determined, leaving the situation unresolved. The Food and Drug Administration and Food Safety Inspection Service of the U.S. Department of Agriculture also weighed in Monday, confirming that the cause of the outbreaks remains unknown.

Despite that, Chipotle officials heralded the CDC’s update as an “all-clear.”

“… the CDC has confirmed that this incident is behind us and resolved, which helps to serve as an all-clear signal to our customers,” said co-CEO Moran.

Potential holes in the new food safety plan

During the earnings call, financial analysts quizzed the Chipotle executives about the chain’s new food safety procedures as much as they asked about future profits.

Ells and chief financial officer John Hartung both cited a blanching policy for certain fresh produce commodities as a key element of the new efforts to keep pathogens out of Chipotle’s food. Ells said individual restaurants would be blanching whole avocados, onions, jalapeños and citrus fruits.

“We’ve put in place a blanching procedure which actually is boiling these items in water for a brief period of time, five seconds, which destroys any microbe that might be on the surface,” Ells said.

Hartung went further, saying the simple nature of blanching will help ensure its effectiveness.

“If you blanch for just a matter of a couple seconds in boiling water, it’s an instant kill step,” Hartung said. “So it’s not like you’re relying on some kind of complex procedure or new process in the restaurant. It’s a very clear step that, when followed, it is going to make each ingredient absolutely safe.”

At least two scientists who have done extensive research with fresh produce and foodborne pathogens disagree.

Keith Schneider, a food safety microbiologist at the University of Florida, and Trevor Suslow, a food pathologist and extension research specialist at the University of California-Davis, said fresh produce would need to be submerged in boiling water much longer than two to five seconds to be an effective kill step.

For cucumbers, which have relatively smooth skins, a minimum blanch time of 15 seconds is recommended. Produce with rough skins — such as avocados and citrus fruit — would require even longer blanch times.

Both scientists said pathogens left alive after a short dip in boiling water could cross contaminate ice baths used to cool down the produce, as well as food preparation surfaces and other ingredients.


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