Last month, in the wake of an E. coli outbreak linked to Chipotle restaurants around the country, the popular fast food chain warned that its business would suffer. But it didn't expect to bleed this much.
On Wednesday, the company announced that its previous gloomy estimate wasn't gloomy enough. Chipotle had expected comparable restaurant sales (those at restaurants which have been open for at least 13 months) to fall by as much as 11 percent for the quarter ending Dec. 31. They are now slated to tumble by almost 15 percent. In December alone the metric fell by 30 percent.
The company also revealed that it had been served with a grand jury subpoena in December. The subpoena is tied to a norovirus outbreak in August at a restaurant in Simi Valley, Calif., and is connected to an investigation by both the FDA and a U.S. attorney's office in California. Chipotle said it's cooperating with the investigation, which requires the company to divulge information and documents about the restaurant connected to the incident.
Carl Tobias, who teaches law at the University of Richmond, said that the subpoena doesn't necessarily mean Chipotle will be subject to criminal charges. "The government is typically more concerned about ensuring that the threat to public health and safety does not reoccur," he said. "Much will depend on what the government learns, and how it perceives Chipotle's conduct."
The past few months have been a trying time for Chipotle. After years of sustained growth, and a seemingly flawless business, America's darling fast-food company has fallen on hard times.
The crisis began last fall when Chipotle closed 43 restaurants in Washington state and Oregon after health authorities linked an E. coli outbreak to six restaurants in the region. Illnesses contracted at Chipotles were then reported in seven more states, including Illinois, Pennsylvania and Maryland.
Then in December, at least 80 students at Boston College fell ill after eating at a Chipotle, leading the company to close another restaurant. Boston health officials said the cause was norovirus, a common virus, while citing the restaurant for two health violations: improper handling of poultry and the presence of a sick employee. And the CDC announced it was investigating another E. coli outbreak that could be linked to the chain.
In all, more than 500 people fell ill in the latter part of 2015 after eating at Chipotle, according to a report by Food Safety News.
Chipotle, for its part, has vowed to clean up its act. In response to one of its biggest health and public relations challenges in its 22 year history, Chipotle pledged to sanitize its operations, hired food safety consultants and announced that it would introduce more-stringent testing of its ingredients. Company executives and health officials say they may never know what caused the outbreak, since any contaminated ingredients would now be long gone. Steve Ells, the company's co-chief executive officer, promised that Chipotle would be a leader in food safety from here on out.
But the current reality remains. Falling comparable sales mean fewer people are visiting the Mexican-inspired chain for lunch and dinner, a stark truth given how flowery Chipotle's past earnings have been.
The drop suggests that what people had observed anecdotally—restaurants where patrons used to line up suddenly empty—is likely happening nationwide. And it bodes poorly for the months and quarters to come. Taco Bell, the last major fast-food company to face an E. coli outbreak, suffered mightily in the aftermath of a 2006 scare, enduring five straight quarters of negative sales growth.
The seemingly endless string of sour news is taking its toll. Shares of Chipotle fell to their lowest level in over two years, after tumbling by nearly 5 percent on Wednesday. The company's stock has fallen by some 40 percent over the past three months alone. And the company seems reluctant to talk optimistically about a short-term rebound. Chipotle warned that future sales could be "significantly influenced by further developments."