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Instant Analysis: Chipotle Mexican Grill Inc. to Woo Back Customers in February

By Rich Duprey – Jan 25, 2016 at 3:30PM

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Mexican food chain will launch a high-profile effort to convince customers all is well

What happened?
Chipotle Mexican Grill (CMG -1.69%) is confident the foodborne illness outbreaks that crippled sales and pummeled its stock are in the rearview mirror. Starting in February, the Mexican food restaurant will be launching a push to begin the process of winning back customers who fled the chain.

 

Does it matter?
The outbreak of cases of norovirus and E. coli at Chipotle Mexican Grill restaurants across the country disrupted what had looked like an inexorable climb higher for the chain. A company built on the motto of "Food With Integrity" was now having to defend the quality and safety of its food.

There was a certain schadenfreude attached to Chipotle's comeuppance, one that wasn't seen when Costco (COST -1.13%) simultaneously suffered an E. coli outbreak, or when McDonald's (MCD -0.98%) and Yum! Brands (YUM -0.95%) had food quality issues at their restaurants in China and Japan. 

Now the restaurant is tasked with convincing the public it is a comeback story, one it plans to unfold beginning next month. On Feb. 8 Chipotle will shut down all 1,900 restaurants for a few hours to update its employees on the new safety procedures it's rolling out and their role in ensuring food safety. It's a dramatic flourish that will precede a marketing effort to inform the public that it has no tolerance for unsafe conditions and the possibility of a recurrence of such foodborne illnesses is "near zero."

The company didn't provide many details of what the marketing would entail, but apparently told investment conference attendees that while food safety itself wouldn't be mentioned -- after all, you don't want to remind customers why they were avoiding your restaurant to begin with -- they may use "clever headlines" to get the point across.

Chipotle suffered a dramatic decline in sales that accelerated in December when a fresh case of norovirus broke out in Massachusetts. Comparable-store sales plunged 34% and ended up down 30% for the entire month, a result the company admits will make its earnings this year "messy." It's also subject to a criminal investigation related to a norovirus case in California, and is facing a number of lawsuits over the outbreaks, including at least one that contends the restaurant covered up the incident instead of reporting it to health authorities.

Still, such crises do tend to fade over time; even McDonald's and KFC bounced back. Chipotle Mexican Grill ought to be able to recover, though it may be well after its "messy" 2016 is behind it.

Rich Duprey has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Chipotle Mexican Grill and Costco Wholesale. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Stocks Mentioned

McDonald's Corporation Stock Quote
McDonald's Corporation
MCD
$234.61 (-0.98%) $-2.33
Chipotle Mexican Grill, Inc. Stock Quote
Chipotle Mexican Grill, Inc.
CMG
$1,540.12 (-1.69%) $-26.48
Yum! Brands, Inc. Stock Quote
Yum! Brands, Inc.
YUM
$107.09 (-0.95%) $-1.03
Costco Wholesale Corporation Stock Quote
Costco Wholesale Corporation
COST
$482.75 (-1.13%) $-5.54

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