Chipotle Mexican Grill (CMG, Financial) was an unquestionable leader of the fast-casual restaurant industry for many years. But the company’s image was badly hurt in 2015 due to an outbreak of E.coli, norovirus and salmonella that exploded at its restaurants around the country. The problems are still affecting the company negatively, but it can still stage a recovery going forward.
This resulted in a protracted investigation by the U.S. Food and Drug Administration. After this, the company’s comps plunged 29.7% throughout the first quarter of this year, leading the company to share its first quarterly loss.
However, the company is taking full responsibility for the problem and putting in a lot of effort to encourage consumers that it will not happen again. Chipotle has decided to use the very best ingredients in its stores, and the company has hired food-safety specialists to project and implement a restored food-safety program.
This new program has different levels, and the first level is the supplier level, as the company has introduced its $10 million Chipotle Local Grower Support initiative, which makes sure that the suppliers meet its improved safety measures.
Moreover, the company is also taking various steps such as testing and sampling of ingredients at the farms as well as the central kitchen that makes lot of its ingredients.
On the other hand, at the second level, i.e. restaurant level, Chipotle has established a couple of measures on aspects like ingredient storage, management and preparation. Apart from this, the company has also implemented new procedures about restaurant cleanliness as well as staff training.
Most significantly, Chipotle is going through financial settlements with the affected consumers, and by doing this, the company is evading long legal struggles that could additionally damage its status.
It is very obvious to say that all these incidents have damaged Chipotle’s reputation massively, and it will take a lot of time to recover. But, the company management has made a smart move by tempting consumers back to the stores with huge discounts as well as free products.
As an outcome, this can offer an appreciated chance to recuperate consumer trust over time. But, the company should be very careful that none of the incidents take place ever again, as it will become impossible for the company to recover.
Conclusion
Although Chipotle’s recovery may take time, I think the company is making the right moves and is on track to turn its business around. Hence, investors looking to buy the falling knife should probably get in at current levels.
Disclosure: I don't hold a position in the stock mentioned in the article.
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