It seems Chipotle Mexican Grill just can’t catch a break. This time the problem comes in the form of allegations against Chief Marketing Officer Mark Crumpacker. The fast casual dining chain reportedly placed him on administrative leave so it could “to remain focused on the operation” of its business. The news comes as The Wall Street Journal reports that Crumpacker faces a misdemeanor drug charge in connection with a cocaine bust.
Chipotle Mexican Grill exec to be arraigned
The WSJ followed up its initial report with an update that Crumpacker is one of 18 alleged cocaine buyers charged with one count of criminal possession of a controlled substance in the seventh degree. This is a misdemeanor, and the media outlet reports that a law enforcement official said he is set for arraignment “in the coming days.”
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Chipotle Mexican Grill shares slumped by as much as 2.42% to $393.01 during regular trading hours on Friday even though the report had nothing to do with the company directly. Many investors see the allegation against Crumpacker as a problem because he is widely viewed as one of the key players in the company’s efforts to come back from the widespread E. coli problems it has faced. He became the fast casual dining chain’s chief marketing officer in 2009 and then added the responsibilities of chief creative and development officer to his workload in 2013.
How will this affect Chipotle’s turnaround?
Deutsche Bank analysts Sharon Zackfia and Matthew Curtis noted in their July 1 report that Crumpacker’s leave comes along with the launch of Chiptopia today, which is a three-month program that aims to increase the frequency of customer visits. The concept comes as Chipotle attempts to pull customers back in amid falling traffic numbers due to the food safety concerns late last year.
They believe the company’s traffic trends improved slowly during the second quarter and that it will be able to meet Wall Street’s expectations for a 20% decline in comparable restaurant sales. However, they also see investors as becoming more impatient with the slow pace of recovery, so they expect Chipotle shares to be very “sensitive” to commentary related to Chiptopia and the recent addition of chorizo in some markets on the July 21 earnings call.
The Deutsche Bank team doesn’t expect Crumpacker’s absence to have a major impact on the current initiatives because their concepts had already been formed and are now being put into action. Bernstein analyst Sara Senatore agrees with this view. She adds that the noise around the drug allegations he faces comes at a bad time for the company, especially since he has been spearheading the efforts to recover from the food safety issues.
She goes further and suggests one potential silver lining, which is that this could convince Chipotle Mexican Grill’s board of directors to build up the company’s leadership with outside talent. For now though, she expects Chipotle shares to be pressured “as yet another layer of uncertainty is added.”