Denver, Colorado-based Mexican fast-casual restaurant chain Chipotle has always set a food safety bar higher than industry standards. Its goal of serving food with fresh and raw ingredients that are locally sourced adds complexity to its scale of more than 1,900 outlets that is hard to master, according to experts at Wharton and New York University. The company’s stakes are higher now as it battles the fallout of food contamination outbreaks at its outlets in nearly a dozen U.S. states. If Chipotle wants to recover from the crisis, it must revamp food safety processes across its supply chain and build a corporation-wide culture to reinforce those, they noted.
Chipotle has grown quickly since 1993, when its founder, Steve Ells, a culinary graduate, opened his first outlet in Denver with an $85,000 loan from his father and an ambition to fuse fine dining with fast food. In the first nine months ended September 2015, the company earned $3.5 billion in revenue and net income of $408 million. But its fourth quarter and 2015 full-year results, set to be announced on February 2, could show the early strains of its patrons running scared of E.coli, salmonella and norovirus contamination.
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Nearly 200 people have become sick after eating at Chipotle outlets since August last year, including an E.coli outbreak across nine states that prompted a consumer advisory from the Centers for Disease Control and Prevention (CDC) last month and a criminal investigation by the U.S. Attorney’s Office for the Central District of California, according to a regulatory filing. Chipotle’s stock price has plunged 45% from a 52-week high of $758 on August 5 to $413 last Friday.
Chipotle could recover from the crisis if it invests in the right corrective steps, according to Marion Nestle, New York University professor in the department of nutrition, food studies and public health. “You have to establish an entire system of preventive controls throughout the food chain,” she said. “You [also] have to establish a culture of food safety within the organization so that every single person who works there has food safety on the mind at all times, and is taking all of the preventive measures that are needed.” Nestle is author of the books Eat Drink Vote: An Illustrated Guide to Food Politics and Soda Politics: Taking on Big Soda (and Winning).
“You have to establish an entire system of preventive controls throughout the food chain.”
According to Wharton marketing lecturer Jason Riis, Chipotle faces both an immediate and a longer-term outcome of the crisis. “One is on the ground, in terms of the levels of disgust people may now feel going into a Chipotle outlet where they may feel they may get sick, and that is going to keep anybody away from any restaurant that is associated with this,” he said. “The second is … the overall threat to its brand.”
Riis said the notion of food integrity is central to Chipotle’s brand image. “They have pushed it, they have promoted it through claims about non-GMO (genetically modified organisms), claims about [its supplies being] local and claims about [being] fresh,” he explained. “This [crisis] is hitting them at a point that is absolutely central to their brand positioning.?Twitter The long-term effects of that, even after this crisis passes, are a lot harder to estimate.”
Nestle and Riis weighed the crisis Chipotle faces and ways for it to successfully recover on the Knowledge@Wharton show on Wharton Business Radio on SiriusXM channel 111. (Listen to the podcast at the top of this page.)
Complexity, Raw Food and Cleanliness
Chipotle is battling the crisis on several fronts. For one, while local and natural food appeals to many consumers, especially the millennial generation, it invites problems of complexity in sourcing, said Riis. “You have so many different players bringing food into this company that it is very hard to keep track of exactly where it is coming from and to ensure that all of these suppliers are compatible,” he added. “Complexity always adds difficulty.”
Nestle noted that the company could not adequately explain where many of its ingredients came from. She echoed Riis’s advice for the company to tighten supply chain controls, adding, “Any food can get contaminated if you’re not taking preventive measures.”
In any event, “raw food is hazardous,” said Nestle. “Most people are unaware of how hazardous raw food is. You take a risk every time you eat anything raw. It’s a miracle that people are as healthy as they are and don’t get sick any more than they do.”
“This [crisis] is hitting [Chipotle] at a point that is absolutely central to their brand positioning.”–Jason Riis
While Chipotle serves many raw ingredients, last month’s outbreak at its Boston outlet where 140 people fell sick is more likely “a food service worker problem where someone on the staff is sick and transmits the virus,” Nestle said. An investigation by the Boston Public Health Commission found multiple violations at the Chipotle outlet, including meat kept at the wrong temperature and an employee who was sick while at work, according to aNew York Post report.
Managing the Crisis
Chipotle did not deal with the crisis as well as it could have, according to Nestle. She said Chipotle was “very late” in appearing to come to grips with the crisis. “The company did not seem to take [the problems] as seriously as it should have after several outbreaks occurred last summer.”
Nestle noted that the public relations aspect of the controversy wasn’t handled well, either. “At one point, [Ells] was … not really understanding that as the [co-chief executive officer] of the company that is making people sick, he has to take responsibility for it,” she added. The company has also faced criticism for accusing the media of resorting to “sensational headlines” and the CDC for “unusual, even unorthodox” ways of announcing the disease outbreaks at its outlets.
Not surprisingly, Chipotle’s rivals like what they see. “There has just been gleeful response in the industry to Chipotle having to go through this because they feel that Chipotle has taken the high road on local and fresh ingredients,” said Nestle. “Those make other restaurants look bad and they haven’t liked it. ‘This is the result of hubris’ is the way a lot of places are looking at it.”
As part of damage control, Ells, as chairman and co-CEO of Chipotle, said in an open letter published in newspapers and on his company website that the company is taking corrective steps. Chipotle has also hired prominent food safety expert Mansour Samadpour to advise it on how to work its way out of its problems. Nestle rated Samadpour as “the right person” to advise Chipotle.
“‘This is the result of hubris’ is the way a lot of places are looking at it.”–Marion Nestle
Could Chipotle Bounce Back?
According to Riis, “there is potential for a win” if Chipotle can demonstrate that it is taking extra care of its supply chain. The company must also show “that the benefits it claims to be delivering through locally sourced and natural ingredients are also translating into extra levels of safety,” he added. “To date, they have not done that.” Ells has said that his company has changed the ways it washes high-risk items like tomatoes and cilantro, although the precise causes of the E.coli outbreak are yet to be determined, according to the New York Post report.
Nestle said Chipotle needs to make sure that every single item is safe, and ensure its employees take extra care with hand-washing and other food safety procedures. It may also have to test foods before and after serving, she added. “Something could always go wrong, and it is difficult to guarantee food safety. But you can institute preventive controls that will cut out most of the problems.”
According to Riis, Chipotle has “to indicate that it is doing the right things and then wait it out.” He said the right course for the company may be “to maintain a low profile, tone down some of the high-minded talk about local ingredients and food integrity, and just [focus on] getting its product right.” After achieving those objectives, it could get more aggressive with its advertising, he added.
“Consumers’ decisions are driven by the top-of-mind concerns, and those will eventually dissipate, especially if the chain continues to do the right thing,” said Riis. Added Nestle, “People have very short memories about such things, and people who liked going to Chipotle [will] go back.”
Photo credit: “Chipotle Brandon” by User:proshob – Own work. Licensed under CC BY-SA 3.0 via Commons