Last month, Chipotle closed 43 restaurants in Washington and Oregon after health authorities linked an E. coli outbreak to six restaurants in the area. The announcement came as a shock to adoring fans of the fast-food company — especially those living in the Pacific Northwest — but it was actually meant to help quell worries about food safety. After all, the company was going overboard, voluntarily shuttering dozens of restaurants when only a few had been implicated. The move, Chipotle insisted, came "out of an abundance of caution." Everything was going to be all right.
Except that it wasn't.
In the 31 days since, illnesses linked to the chain have been reported in seven more states, including Illinois, Pennsylvania and Maryland, suggesting the problem was neither isolated nor a fluke. What's more, the avalanche of unfortunate news has yet to subside: On Monday, 30 students at Boston College fell ill after eating at a local Chipotle, leading the company to close yet another restaurant; On Tuesday, the number grew to at least 80 students. Although Boston health officials believe the food-borne illness is norovirus—not E. Coli — and is isolated to a single location, they won't know for sure until test results are available in a few days. In the meantime, Chipotle is left to cross its fingers in hopes that yet another state isn't at risk.
To say that the outbreak is a problem for America's fast food darling would be a gross understatement. The food scare jeopardizes Chipotle's reputation as a purveyor of high-quality food, which has, at least until now, helped propel the brand into a model for the rest of the industry. It's also emblematic of problems that could surface down the road, as the chain continues to expand.
Chipotle's response has been swift. The company, which has now closed dozens of restaurants around the country, is working to clean and sanitize its operations. It has also hired food safety consultants to improve its standards and assured its customers that it is doing everything it can to contain the outbreak. Just last week, it announced that it has revamped its food safety procedures by updating its supply chain and introducing DNA testing of its produce.
But the damage has been done.
Although it's unclear how many of Chipotle's nearly 2,000 locations have been directly affected, it's not unreasonable to think that all of them have suffered in some way. The company, which has posted strong revenue growth since it went public in 2006, has already said that it expects significant declines at its flagship stores, where sales could fall by as much as 11 percent in the fourth quarter as a result of the scare. Its shares, meanwhile, have fallen by nearly 30 percent since mid-October, when the outbreak was first detected. A good deal of that is likely due to residual effects — customers, worrying that a choice to eat lunch at Chipotle comes with an unnecessary risk, are choosing something else; investors, fearing the same, are looking elsewhere, too.
If previous examples are any indication, Chipotle's woes could continue for some time. Taco Bell, the last major fast food company to face an E. coli outbreak, suffered mightily in the aftermath of its 2006 scare. The chain quickly pinpointed and resolved the issue — shredded lettuce served at its northeastern U.S. locations — but the pain persisted, leading to five straight quarters of negative sales growth. Yum! Brands, Taco Bell's parent company, told investors in 2007 that its "Taco Bell business has been negatively impacted by adverse publicity related to a produce-sourcing issue."
More troubling than the immediate impact of Chipotle's run-in with food safety is the reality that the outbreak could cast a shadow that lingers long after the chain has cleaned up the mess. No food company wants to be associated with foodborne illnesses, but the association could be especially crippling for Chipotle, whose brand centers on a promise of clean food.
Nowhere is that promise louder than on the company's website, where its core mission, selling "food with integrity," emphasizes a respect for all participants in the supply chain, including animals, farmers, customers and the environment. Ever since the company first opened more than 20 years ago, it has worked to make good on that promise by seeking out ways to cut its carbon footprint, carefully choose its farmers, source its ingredients locally where it can, and work with meat farmers such as Niman Ranch Pork Company, which has long been a leader in humane animal practices.
This has been a major key to the chain's success. Although fast-food giants, such as McDonald's, have struggled after years of prioritizing cheapness in its supply chain, Chipotle has thrived by putting quality first. The unparalleled success of the chain is glaring proof that people are willing to pay a bit more for that assurance.
More recently, however, that success has also been a lesson in how hard it is to scale the entirety of a business like Chipotle, with its promise to sell food people should feel good about eating.
In 2013, the company was forced to begin serving "conventionally raised beef," after it became clear that there was no longer enough antibiotic- and hormone-free beef to go around. In January of this year, it decided to pull pork from the menus at roughly a third of its restaurants (some 600 stores nationwide) after one of its suppliers violated its standards. Chipotle anticipated only a brief interruption in its ability to source pork it was proud of, but it took more than half a year, a foreign company, and two of Chipotle's most disappointing quarters on record to put carnitas back on the menu. Farms that raise pigs outside of gestation crates simply don't represent a large enough portion of the pork industry.
Chipotle's bout with foodborne illnesses appears to stem from the same laudable but increasingly tenuous desire: to build a business without changing it too much.
"They’re trying to be local and serve food with integrity, but as you grow it becomes incredibly complex and difficult and challenging," said Darren Tristano, executive vice president of industry research firm Technomic. "When you look at what’s going on, how they're expanding, the outbreak was almost bound to happen."
Chipotle understands this. The company admitted as much in its most recent annual report, where it warned that its use of "fresh produce and meats rather than frozen," and "reliance on employees cooking with traditional methods rather than automation," puts it at a higher risk for outbreaks of foodborne illnesses.
Tristano, who admits that it's hard to hear about a food safety issue and still feel comfortable eating at the chain in question, believes that the effects of the scare will be significant but not likely long-lasting.
"Consumers have a surprisingly short memory," he said. "I would be surprised if it's still affecting them by mid-next year."
Whether that proves true doesn't diminish the challenge ahead. On the one hand, Chipotle has an ongoing food scare to clean up and then, eventually, erase from the minds of its customers. On the other, it has to reconcile with the very real possibility that problems like these are only going to become more frequent — and formidable — if it is as determined to ascend in the American fast-food industry as it seems.