The high cost of a food-safety crisis
Foodborne illness is more than just a nuisance for a restaurant operator or chain. Chipotle’s experience following a series of outbreaks in the second half of 2015 provides a cautionary tale for other restaurant companies on how an incident—or, worse, a series of incidents—can threaten to topple a once robust brand and showcases best practices and improvements required in order to recover.
The series of food-poisoning episodes—an E. coli outbreak that affected locations in nine states, a salmonella outbreak in Minnesota and two separate norovirus incidents, one involving more than 200 customers—created serious issues for Chipotle’s image and bottom line.
The collateral damage: Comps for 2016 slipped 20.4%, thanks mainly to a big drop in traffic. Same-store sales for the last quarter of 2016 were down 4.8% from 2015, and store-level margins dipped to 6.8 during 2016, down from 19.6% a year earlier. Net income for the year was $22.9 million, versus $475.6 million in 2015, when 240 fewer units were open. By the end of 2016, Chipotle stock had dipped to about half its all-time high price. The numbers illustrate the stark reality of the financial burden foodborne illness can bring.
It also takes time to fully recover, and many businesses never do. More than a year after the first food safety scares at Chipotle, a HuffPost/YouGov poll in December 2016 found that only 36% of respondents were confident that Chipotle’s food was safe to eat. Another 24% said they weren’t, and the remaining 40% were unsure.
Chipotle took these numbers to heart and put a team of industry and internal experts in place to evaluate current food-safety protocols and establish best practices to prevent future occurrences.
Adding to its woes, last year, the company was served with several grand jury subpoenas in connection with the outbreaks. A variety of lawsuits have surfaced in the interim as well.
But Chipotle is only the latest example of an escalating trend of government actions against food and restaurant companies, driven primarily by the U.S. Department of Justice and the Food and Drug Administration.
In the last several years, high-profile cases have been mounted against food producers and have resulted in heavy fines—and even prison sentences—for senior management. Executives from Quality Egg and Peanut Corporation of America faced jail time in connection with salmonella outbreaks; prosecutors in the latter case were seeking life in prison for the former CEO after some 20,000 victims were sickened. Legal experts expect the trend to continue as public health watchdogs grow more aggressive and food science evolves to help pinpoint the source of foodborne illness cases.
In a battle to regain public trust and restore its financial health, Chipotle has made a concerted effort to demonstrate its commitment to food safety. The steps, outlined in detail on the company’s website, include:
- Supplier interventions and testing
- Use of high-pressure processing, sous vide and blanching to eliminate pathogens
- Food-safety training for local farmers
- Enhanced on-site protocols for handling ingredients and sanitizing surfaces
- Mandatory food-safety certification for managers and field leaders
- Stepped-up internal and external on-site food safety inspections
- Advanced electronic tracking for ingredients
- Establishment of an expert advisory council to review procedures
Chipotle and many other foodservice manufacturers, processors and operators are discovering how challenging it can be to win back consumers’ and investors’ confidence and restoring a once-solid reputation following foodborne illness.