Food safety debacles taint high-flying Chipotle

Chipotle Mexican Grill, the US burrito chain which surged in popularity on its natural and fresh ingredients, is facing tough questions after a pair of high-profile food safety debacles.

The fast-growing restaurant group has seen sales plummet since it shut 43 restaurants on the west coast in early November following an E. coli outbreak that sickened more than 50 people, with 20 hospitalized.

The E. coli case was followed this week by more than 100 cases of norovirus in Boston linked to a Chipotle near Boston College.

The Boston outbreak initially spurred worries that it may have also been E. coli, which can in the worst cases cause kidney failure. But Boston public health officials determined the illness was norovirus, which usually passes after one or two days.

The incidents have marred the reputation of Chipotle, which has touted its "food with integrity" in using meats from livestock not fed on antibiotics and a preference for organic and locally-grown vegetables.

That has helped Chipotle become a high flyer on the stock market over the last two years, while larger chains like McDonald's have struggled.

- No more growth? -
But shares have fallen about 15 percent since early November in the wake of the health scares and restaurant closures. And the shares, at around $571 on Thursday, are 25 percent below their peak this year.

The worry is that Chipotle's high-standard brand positioning creates a greater risk when they stumble.

"Is this the decline that ends the growth story?" asked a note from Trefis, an independent stock analysis group.

"It was clear that Chipotle, who preaches the concept of 'food with integrity' and hygienic food, cannot go wrong in their own game," said the note.

"Unfortunately, Chipotle's future was stained with an event similar to McDonald's food-safety scandal in China last year. In fact, it was more severe for a young company whose investors seemed ready to pull out even on slim indications of instability."

Chipotle founder and co-chief executive Steve Ells took to national television to apologize Thursday.

"I'm sorry for the people who got sick," Ells told the Today show. "They're having a tough time, and I feel terrible about it."

The incidents prompted the company last week to withdraw its 2016 sales forecast. The company projected fourth-quarter profits well below Wall Street expectations.

Chipotle has spent between $6 million and $8 million responding to the E. coli case to replace food, conduct lab analysis and hire experts to upgrade its food-safety practices.

A spokesman said the problems have not affected plans to further expand. The company currently has about 1,850 restaurants, up from 481 in 2005.

Chipotle said it would undertake high-resolution testing of all fresh produce and step up employee training to prevent future problems.

"We're doing a lot to rectify this and make sure it doesn't happen again," Ells said.

"It has caused us to put in place practices that our epidemiologist says will put us 10 to 15 years ahead of industry norms and I believe this will be the safest restaurant to eat at."