In the wake of a pair of widespread outbreaks of E.coli that left 55 customers across 11 states infected with the bacterial pathogen, Chipotle is implementing new food safety measures to ensure that this situation doesn’t reoccur.
Even though the U.S. Food and Drug Administration (FDA) declared the Chipotle-related outbreak officially over February 1, investors are reeling. After cutting earnings estimates several times, it’s expected that Chipotle will report earnings of only $1.70 to $1.90 a share, compared to $3.84 in fourth quarter 2014. Wall Street is also expecting same-store sales to decrease 15 percent. Over the long term, three quarterly declines are expected in 2016.
Recovering In The Aftermath
Chipotle’s self-described commitment to “food with integrity” is coming under scrutiny by the public in the wake of these recent E. coli outbreaks.
Customers are fleeing to other fast food chains, including McDonald’s, Inc. and higher end Mexican chains like Chili’s. Chipotle knows this and is developing a plan to recapture the trust of their once-loyal patrons, as well as holding on to the good faith of investors.
An extensive advertising and social media campaign is planned to start in February. Chipotle intends to address customer concerns about food safety by explaining their food handling process step by step. A new section, “Food Safety,” has already appeared on the corporation’s website.
Coupled with already vulnerable earnings figures last October, this E. coli scare has created a long road back for Chipotle and their customers. Earning back business is a process that doesn’t happen overnight. In fact, when Jack in the Box, Inc. experienced a similar (but larger) E. coli outbreak in 1993, it took more than four years for share values to recover.
Analysts expect Chipotle to face an uphill battle, but nothing like what Jack in the Box went through. Instead, they forecast that earnings will recover to prior levels by third quarter 2017. That might seem far away now, but in light of similar epidemics, such a short sentence may come as a blessing. Chipotle is already working on aggressive changes within the corporation to address food safety and has no shame about announcing this to the public. In the end, this response may earn more new lifetime customers than Chipotle has lost.