The rapid success of Chipotle became its downfall as it failed to maintain food safety and regain customer’s trust.
In the May 2024 Axios Harris Poll reputation rankings, Chipotle has seen a massive drop in brand reputation, being one of the fastest droppers across 100 major U.S. brands. Over the years, the fast food Mexican grill restaurant has faced a slew of PR-disasters that caused outlets to close, the stock to plunge and customers reluctant to return. What happened along the way and will Chipotle be able to recover?
An August 2017 consumer survey conducted by Cowen revealed that the Chipotle Mexican Grill brand was nowhere near a full recovery, with customers reluctant to return to the fast food chain, having concerns over food safety after an E. coli incident. In a note, cited by CNBC, analyst at Cowen, Andrew Charles wrote that a speedy sales recovery is unlikely as perceptions over quality and value suffered. In years to come, Chipotle would battle against negative press and virus outbreaks at its restaurants across the U.S.
Chipotle success
Before the chain of unfortunate events took place, Chipotle was riding the wave to success. In 2015, Chipotle had grown to a $22 billion fast food enterprise, chipping away market share from established brands like McDonald’s. The story is remarkable, as the Mexican fast food chain didn’t capture massive customer volumes by opening retail locations at the densest urban centers, or drive-throughs, a tempting franchise model or big advertising campaigns, Bloomberg noted. The story is remarkable as it enjoyed investment from McDonald’s, who taught the team at Chipotle the tricks of the trade.
Chipotle was rapidly opening up new locations, having 704 restaurants worldwide in 2007, passing the 1,000 mark just three years later. By 2015, Chipotle opened its 2010th store and there were little signs of slowing down. The rapid growth was fueled by successful public offering which unlocked $340 million to expand the brand. McDonald’s made a good bet, but Chipotle was just getting started, proving to be a cash printing machine for investors. Its unique approach of offering fresh meals at the price of a fast food meal, drew massive crowds, Bloomberg explained.
McDonald’s meanwhile was dealing with an image crisis, becoming the symbol for American food overconsumption. Consumers were ready for something different. A healthier meal, with the same convenience and same price point. The founder of Chipotle, Steve Ells, positioned the fast food chain just within this sweet spot. The company’s rise to stardom wasn’t a mere coincidence. Ells was no stranger to food, as a 1990 graduate from the Culinary Institute of America and working as sous-chef at Jeremiah Tower’s Stars restaurant, he got an exclusive look at the inner workings of the food industry.
During his time at Stars in San Francisco, he developed an appetite for local taquerias, or taco stands,, which acted as the inspiration for Chipotle. Ells returned to Denver where he opened a Mexican restaurant, hoping to generate the necessary funding to open up a real restaurant someday. Ells told the Culinary Institute of America that the institute taught him many valuable lessons for running a restaurant, giving him the necessary tools to build his dream. Ells saw potential in the taquerias he enjoyed back in San Francisco, seeing opportunities to serve them more efficiently. The way the tacos were assembled made them into worthy candidates for nutritious, fast food items, he explained.
While seeing resistance from his father, Bob Ells, who considered spending vast sums for education on culinary excellence, morphed into assembling tacos and burritos, a waste of effort. Even co-founder, Monty Moran, was skeptical that Ells could pull it off. But after having a bite of the first Chipotle burrito at Ells’ home, he was convinced of the hidden potential. It was Ells’ father who would provide the first funding to open the first Chipotle restaurant, only after Steve Ells could make the numbers work, however. Steve calculated he needed to sell 114 burritos a day to turn break even.
Public health in jeopardy
But months after the rags to riches story published by Bloomberg, the empire started to show its cracks. In November 2015, news came out that dozens of Chipotle locations had to close down after 35. E. coli cases. The restaurant chain had already closed 43 restaurants in the affected states of Oregon and Washington, CNN citing the company’s press statement. Chairman and co-CEO of Chipotle, Steve Ells, commented that customer safety has always been the company’s top priority, reiterating that the restaurant chain works with fresh ingredients and trusted suppliers to ensure food safety.
Customer of Chipotle, Charmaine Denise Mode, had filed a lawsuit against the company for contracting the virus, experiencing severe emotional and bodily distress. Mode demanded $75,000 in damages, having fear over her long-term health. The company’s stock nose dived after the news came out, falling 5 percent after the stock market opened in early November of 2015. Problems compounded as no timeline was given when the stores would reopen. The 43 closed restaurants represented 2 percent of the total location inventory in the United States. But, CNN commented, while they might represent a fraction of the total business, they could have spill-over effects on other locations.
In November 2015, Reuters commented that the closure of several locations acted as fuel to the fire of the company’s most vocal critics. While health officials are busy tracing the cases and finding the locations that are the epicenter for the E. coli outbreak, analysts expected that the closures would damage the brand image and dampen sales across the 1,900 locations after a long period of exponential growth. Reuters cites restaurant analyst at Maxim Group, Stephen Anderson, who said in a research note that it would take time for traffic to recover after Chipotle would light the green light that food safety is once restored.
In January 2016, months after the E. coli outbreak, Chipotle was sued for allegedly misleading investors about food safety control. The civil lawsuit noted that the company had inadequate food safety protocols in place to safeguard consumer and employee health. In turn, the company’s stock plunged, causing damage to inventors’ financial portfolio’s. The damages cover the periods between February 2015 and January 2016 where investors bought shares. NBC noted that the civil lawsuit was yet another problem on top of the already cooled down sales performance.
Executive shuffle
In February 2018, Chipotle announced it appointed Brian Niccol as chief executive officer and a member of the Board. Niccol had been at Taco Bell since 2011, acting as president of the fast food chain between 2013 and 2014. In the statement, Chipotle noted that Niccol successfully repositioned Taco Bell into a lifestyle brand, launching successful products that allowed the fast food chain to enter and expand into new categories. Taco Bell, under Niccol’s leadership, transformed into a social media phenomenon, introducing digital mobile orders and payments across its 7,000 restaurants.
His position at Chipotle would prove vital to recover the damaged Chipotle in the years that followed. CNBC pointed out Niccol’s extensive experience with brand building, highlighting his work at P&G, where he successfully launched a Scope mouthwash campaign through a first of its kind email reach-out featuring animated gifs. Before he joined Taco Bell, Niccol started at Yum Brands in 2005, the home of popular fast food brands such as KFC and Pizza Hut. Niccol has been on the forefront of online ordering, introducing online sales at Pizza Hut. A strategy that Domino’s was also pursuing aggressively.
At Taco Bell, Niccol made a name for himself by launching a daring, limited-time menu, introducing products such as Naked Chicken Chalupa and Nacho Fries, CNBC noted. He fostered a culture where employees could bring new ideas that would bring innovations to its menu. However, in February 2018, Reuters remained skeptical, commenting that more was needed to restore the brand after still feeling the effects of the food safety disaster two years down the line. Chipotle’s creative fell into a recession, with little innovation coming from the company’s leadership. New ideas were much welcomed, as the fast food chain needed fresh concepts to recover its tainted reputation.
Amidst falling share prices, Chipotle’s executives reassured investors that there was hope on the horizon for the second half of the year. But words can do little against the virus outbreak that spread like wildfire, wreaking havoc for the once upcoming fast food disruptor. Reuters noted that after the outbreak, Chipotle took drastic measures to contain the damage, launching a training programme to educate its employees on food safety, welcoming four new board members and adding a new menu item for the first time in 20 years.
Despite these steps, Reuters noted, Wall Street analysts remained skeptical, mimicking the words of years prior. Analysts praised the company’s efforts to launch a digitalization strategy that welcomed mobile orders and upgraded its store locations. These innovations might prove vital to restore Chipotle’s sales and welcome new customers. Until that point, some investors remained on the fence, awaiting tangible proof that Chipotle was on the right track. Skeptics were proven right as months later in July 2018, a Chipotle Ohio location had to temporarily close down due to customers falling ill after dining at the restaurant.
USA Today noted that while there were no direct links to the fast food location, the news sent shock waves across Wall Street, with the company’s stock dropping by 7 percent in afternoon trading. The timing was especially unwelcome as the company was close to revealing its second quarter financial results. In an attempt to damage control, Chipotle told USA Today that the spread was limited to an isolated incident. In August 2018, CNBC reported that The Delaware General Health District had received 703 reports related to the outbreak at Chipotle’s Powell location, with 513 self reporting nausea and other related symptoms.
Food related safety issues can have a severe impact on consumer trust. Food safety is one of the most important topics for consumers in regards to fast food and food consumption. A December 2022 publication in the journal Food control, which surveyed 2,723 respondents across nine countries revealed that consumers consider meat, meat-products, egg and egg-based products as posing the highest risk to public health. The perception of food safety and its importance, the researchers found, vary significantly geographically, compared to gender. Hygiene was perceived as one of the deciding factors to ensure food safety, with foods from animal origins seeing higher rates of possible health safety risks.
A February 2024 publication, examining perceptions of food safety in the developing economy of Kosovo, found that consumers were most concerned with their personal health with foods in relation to the content and its subsequent consumption, which could lead to nutritional deficiencies or cause diseases that were transmittable through viruses, bacteria or parasites. This sentiment was especially prevalent among younger demographics, who simultaneously were more active on social media resulting in faster spreading of news.
Repairing the Chipotle brand
In October 2018, CNBC spoke with CEO at Chipotle Mexican Grill, Brian Niccol and the company’s CFO, Jack Hartung, about the company’s transformation to step away from its troubled history of food safety, which put a dent in the organization’s marketing objectives. Hartung emphasized that Chipotle has always been focussed on delivering high quality food, hiring great people to fulfill its mission. However, Hartung, admitted that the food safety setbacks of previous years forced the team to change its message, moving away from what made its food special.
Niccol added that he was impressed by the food standards at the fast food chain, however, they were not enough and required a standard equivalent to that of Taco Bell. These food safety standards will have to strike a balance between delivering fresh ingredients, whilst ensuring customer safety. Continuing to say that the protocols will be hard to find at competitors. Hartung reiterated that the company hires top employees who abide by the company’s strict food safety standard and Chipotle’s commitment to safety will remain as it reinvents itself.
Years after the E. coli outbreak, food safety still haunted the Mexican fast food chain. In April 2020, Chipotle received a fine of $25 million in order to resolve criminal charges that accused the company of serving tainted food between 2015 and 2018, resulting in 1,000 citizens in the United States to fall ill. Assistant Attorney General at the Department of Justice’s Civil Division, Jody Hunt, said in a statement that the case is a reminder to all those operating in the food services industry that they should abide to strict food safety protocols, adding that the Depart of Justice would continue to enforce food safety standard to protect public health.
U.S. Attorney Nick Hanna for the Central District of California, noted that Chipotle failed to implement the necessary schemes where employees were made aware of the health hazards that could arise when mishandling food, which resulted in hundreds of customers experiencing its adverse health effects. Hanna added that Chipotle invested millions in updating its supply chain, with the multimillion dollar fine serving as a warning that such programs cannot be overlooked or rushed.
Supply chain safety
The fine might have given restaurant owners a scare, Chipotle meanwhile was still a long way from abiding to the high food safety standards it had claimed to have implemented. In September 2022, former service manager at a New Jersey Chipotle restaurant, Quincidy Boston, said her job was wrongfully terminated after warning about poor handling of food and forging food safety documents. Boston said she saw managers temper with food records where they claimed food was adequately checked to meet legal safety requirements. After witnessing multiple incidents of poor hygiene and food handling notified managers, but quickly discovered that little was done with her warnings, with managers at the restaurant continuing to violate safety protocols, including mishandling of PPE after usage.
After filing an ethics report, warning Chipotle headquarters about the issues at the restaurant, she was demoted and removed from the Springfield location, finding herself relocated to a remote Chipotle restaurant. A lot can go wrong at a restaurant level, which can be more easily contained with proper inspections, what remains difficult however, is ensuring that the entire food supply chain is properly controlled through strict oversight. Along this piece, we’ve primarily focused on the restaurants themselves and Chipotle’s handling of contaminations. However, an important piece of the puzzle are its suppliers and their food handling. Amidst the PR-crisis that was enveloping around Chipotle, Bloomberg focussed on the complicated supply chain that moved food stuffs to Chipotle’s restaurant network.
Bloomberg explained that Chipotle uses a network of distribution centers and processing facilities, that it calls commissaries, which play a vital role in food preparation to centralized kitchens such as Chipotle or other chain restaurants. The operations of the company’s supplier network bath in secrecy, with outsiders only being made aware that the fast food chain uses around 100 suppliers for the 64 ingredients it uses to make its meals. This network goes beyond local farms within a 350 mile radius that deliver fresh products to the restaurants. During peak seasons, Bloomberg noted, they provide only 10 percent of the ingredients. Only a few suppliers have been made public. Chipotle said it had been purchasing pork for its carnitas from Niman Ranch for 15 years.
However, many suppliers go unlisted, leaving many guessing who is responsible for providing all the necessary ingredients to Chipotle kitchens across the United States. Upon further question, the fast food chain unveiled additional suppliers such as pork and beef suppliers OSI Group and Ed Miniat Inc. in Chicago and the Denver-based Ready Foods. Restaurant consultant John Knight, who worked with the company between 2009 and 2011, said Chipotle purchased foods also used at casinos and cruise ships. Wells kept oversight of the suppliers, ensuring they would prepare the foods to his standards.
In December 2015, Chipotle announced it would improve its supply chain operations, introducing new preparation practices which included improved tracking and cutting and washing of produce at centralized locations the website Manufacturing reported. The preparation practices move away from the long running protocols of preparing food at individual restaurants, a method the company believed would deliver fresher food. By removing some of the steps along the supply chain, Chipotle aimed to reduce the number of possible contaminated surfaces the foods would be in contact with.
Safety first
Chipotle was on top of their game, disrupting the fast food market in the United States, growing exponentially year-over-year. However as the years progressed and complexity grew, the cracks in the vast supply chain network started to show. The Mexican fast food chain relied on numerous suppliers that brought fresh products to its locations every day. But, Chipotle miscalculated the necessity of strict food safety protocols throughout the food supply chain, from farming to kitchens. Contamination found its way into its products, leading to chain reactions that caused dozens of locations to close down temporarily.
In a world where hundreds of millions of people are connected through social media and have instant access to news 24 hours a day, the news about Chipotle’s failure to guarantee food safety started to spread like wildfire. Investors got scared and the company’s stock took multiple nosedives over the course of multiple months. In an attempt to damage control, Chipotle hired a new CEO who, alongside the company’s CFO, appeared on news stations to regain trust of investors and its customers, introducing new food preparation controls and retrain staff on food safety.
Despite these efforts, the Department of Justice fined the fast food chain, hoping it would act as a reminder to the entire food services industry that public health cannot be taken lightly. However, concerns related to food safety at Chipotle seeped into the 2020s, with the virus outbreak still haunting it to this day. While efforts have been made, food safety can run deep with consumers and is hard to shake off. A lot of communication and supply chain optimization will be necessary to get Chipotle back on track. The company’s revenue performance might be on the right trajectory, a lot could’ve been prevented by allowing more transparency around its supply chain and ensuring restaurant staff was made well aware about the perils of mishandling food.
