Is Chipotle screwed after E. coli outbreaks?

Is Chipotle screwed after E. coli outbreaks?

E. coli and norovirus outbreaks have sickened dozens of people and is hammering the brand's reputation.

Things are getting ugly at Mexican food chain Chipotle.

More reports of potentially deadly ailments like E. coli and norovirus at restaurants across the nation have the popular burrito chain scrambling to contain the outbreaks, and for a company that markets itself as an all-natural alternative to processed fast food, this poor safety record could absolutely hammer the brand.

As we reported recently, the company shuttered yet another restaurant in Seattle after repeated food safety violations. A multi-state E. coli outbreak has sickened 52 people so far, and now a norovirus outbreak that may have originated at a Boston area restaurant resulted in well over a hundred people falling ill. So what does this mean for Chipotle? Nothing good, certainly, according to an InvestorPlace report.

Chipotle Mexican Grill had been one of the best performing stocks out there, but it is getting absolutely hammered in the last two months since the outbreaks began, dropping 30 percent over such a short time frame. And that may only be the beginning, according to the report.

The problems began in mid-October, when CMG posted disappointing third-quarter earnings, causing the stock to drop 7 percent in just one day. Chipotle was already facing problems with having to raise menu prices due to the rising cost of labor, which were eating into its bottom line, and labor is only expected to cost more in the future.

Then, the E. coli outbreaks hit in early November in Washington state and Oregon. The outbreaks expanded to nine states, putting Chipotle in the headlines for all the wrong reasons.

It hasn’t just been the stock that’s been beaten up in this crisis. Same-store sales dived as much as 20 percent after the initial cases emerged, and the chain expects sales to slup another 8 to 11 percent in the fourth quarter.

Sales had already been slumping before the outbreak after seeing tremendous growth in recent years. So while Chipotle may get to the bottom of the E. coli outbreak eventually and restore its reputation, it may take a while, and the underlying factors are concerning for the company.



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