Please ensure Javascript is enabled for purposes of website accessibility

The Biggest Problem With Chipotle's Latest Outbreak Isn't What You Think

By Jeremy Bowman - Updated Jul 19, 2017 at 3:33PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

A norovirus outbreak at a Virginia location prompted a sudden sell-off in the stock, but a lack of explanation by management is more concerning.

Chipotle Mexican Grill, Inc. (CMG 1.75%) may be living its nightmare all over again. Shares of the burrito chain were down as much as 7.6% on news that a Chipotle location in Virginia had shut down in what appears to be a norovirus outbreak.

According to Business Insider, which first broke the news, at least 13 customers fell ill at a Sterling, Va. location after eating there on Friday or Saturday. Chipotle closed the restaurant on Monday once they learned of the illnesses. 

A Washington, DC Chipotle location

Image source: Chipotle.

The news is especially concerning as the burrito chain is still struggling to repair its image after a series of foodborne illness outbreaks in 2015 that included salmonella, norovirus, and most importantly, E. coli.

Unlike E. coli, norovirus is not a food supply issue so other Chipotle restaurants are not affected. It's a highly contagious disease that may have been contracted through a Chipotle employee who had it. The company has yet to issue a statement on the matter. However, Chipotle's Executive Director for Food Safety Jim Marsden told Business Insider, "We are working with health authorities to understand what the cause may be and to resolve the situation as quickly as possible."

What's next?

Reports of another foodborne illness outbreak are about the worst thing that could happen for the company. After sales and the share price plummeted at the end of 2015 on the E. coli crisis, the company spent much of last year implementing new food safety protocols and hiring experts to direct the new program. In an apology letter following the E. coli outbreak, Chipotle Founder and CEO Steve Ells said the company would bring foodborne illness risk to near zero. 

However, Chipotle may be repeating the same mistakes during the last round of outbreaks as the company has failed to get out in front of media coverage by making its own statement, and is instead allowing fear about an outbreak to run amok. 

While Chipotle was tweeting its usual blithe promotional messages this afternoon like this:

Customers were responding like this:

Chipotle is addressing specific media outlets. Spokesman Chris Arnold told Reuters that the company planned to reopen today after closing voluntarily yesterday to sanitize the restaurant.  

But Chipotle should apologize for the incident, explain to customers what's happening, and assure them that no other stores are affected. Right now, management simply looks like it hoped no one would find out. It's terrible crisis management. One analyst even called for Steve Ells to be fired as a result of the incident and the response. If the stock continues to decline, that call is likely to gain support.

The long-term effect

The stock is down about 5%, demonstrating that the market is concerned about the norovirus incident, but it's not as bad as it could have been, considering the E. coli outbreak wiped out nearly 50% from the stock. Ultimately, the long-term effect will depend on the customer response. It's too soon at this point to say if the news will result in any meaningful exodus from the brand, but it doesn't look good, especially at a time when enthusiasm for the brand was building again on news reports about queso and other new menu items that could soon hit restaurants.

As an investor, my biggest concern isn't the norovirus outbreak itself, but the failure to address it. The original E. coli outbreak only affected about 50 people, but it tanked Chipotle's sales because the company was slow to address it and blamed the media and CDC reporting methods. It's attitude was often aloof rather than apologetic.

Perception is a key factor here, and Chipotle still seems not to have learned its lesson, that it needs to maintain its image even if it doesn't consider the norovirus incident to be serious. Hopefully, the company will come out with a full and detailed explanation of the outbreak in the coming days. That's the least its customers and investors deserve.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Chipotle Mexican Grill, Inc. Stock Quote
Chipotle Mexican Grill, Inc.
CMG
$1,288.77 (1.75%) $22.13

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
322%
 
S&P 500 Returns
116%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/25/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.