Chipotle Continues to Struggle Almost a Year after E. Coli Outbreak at Its Restaurants

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Chipotle, the darling brand for most people and the apple of the eye for investors have been struggling since the year ago outbreak of E.coli detected at some of the restaurants of the popular Mexican Grill restaurant chain, which caused 55 customers to fall sick across 11 states. Last December, a norovirus infection caused 140 students from Boston College to take ill after they consumed Chipotle food.

The brand continues to hemorrhage from within and is reeling under multiple accusations and internal problems.

‘Year of reinvestments’

CEO and founder of the 23 year old brand, once considered amongst the most popular and successful in the country, has tried to put a positive spin to the recent events and the year in general as “year of reinvestments”, which if decoded would mean a year of losses and disappointments, not just because of the virus outbreaks but also lawsuit claims that have tarnished its image further and have left it poorer.

The CEO had tried to calm frayed nerves last year, following the detection of E. coli and later norovirus by reassuring that the restaurant chill would radically change its cooking methods to make it the “safest place to eat”. However, the problems are far from over and even after a year, the Mexican grill chain has failed to win back a lot of its customers although it keeps claiming that its loyal customers are already back.

Seeing long queues at Chipotle restaurants during lunch hours was a common sight a year back. Now, hardly a few walk past its turnstiles.

Sales down 22%

Chipotle has reported tepid third quarter numbers and its sales are down 22% from the last year. The stock fell another 2% after the quarterly results were reported on October 25th this year. The stock which was trading at $750 apiece even till last October, is down below $400 after the latest round of earnings were reported.

The brand continues to remain expensive for most investors though as it is still trading at 61 times its forward earnings. A lot of market experts are maintaining either a “hold” or “sell” rating, which was unthinkable a year back before the E.coli and norovirus incidents rocked its applecart. Some experts have pointed to a curious situation where an expensive blue-chip stock doesn’t have a “buy” rating and the once cash-rich company continues to report losses on successive quarters.    

Strategy to counter the recession

Chipotle which has spent millions of dollars on advertisement since last year to recreate its brand image has come up with a new strategy. In a special promotional offer available only for Halloween, customers who walk into the store in Halloween costumes would be offered its famous burritos, tacos, salads and bowls at just $3.

It remains to be seen whether such tactics pay dividends and improve the footfall in the stores, which continues to be abysmally low even after a year. Chipotle now has a score of 9 on YouGov Brand Index, a brand that tracks a brand’s reputation. This is up from -5 low it had reached in February this year and remains to be seen if it can reclaim its highs of 25.

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