Why Chipotle may be screwed in 2016

Why Chipotle may be screwed in 2016

Chipotle has been rattled by E. coli and norovirus outbreaks, and while they say they have it under control, is it too late?

Chipotle wants forgiveness for a disaster of a year in 2015 — but investors are not known for their forgiveness, and more punishment could be on the way for the once high-flying brand in 2016.

Chipotle Mexican Grill ended the year down 28 percent as of Dec. 28 after outbreaks of E. coli and norovirus sickened dozens and ruined the brand’s reputation, according to a MarketWatch report.

The company insists it has the problem under control, but investigators are still looking into the issue at the Centers for Disease Control and Prevention. Investors have hammered the stock and appear to have lost a lot of faith in the company. But how did it get to this point, and is the worst ahead for Chipotle?

For one thing, MarketWatch surmises, Chipotle may have expanded far too quickly. The company quadrupled the number of restaurants it opened in the past decade — 2,000 in all, opening 500 in just the last three years.

That resulted in an explosion of revenues, great in the short term for the company but also resulting in busier and busier restaurants with less and less oversight. And as a result, it appears that Chipotle is reaping the rewards when safety standards start to lag in the name of growing at an exponential pace.

And that mistake may have been compounded by offering huge incentives to Chipotle executives to push that aggressive growth, offering big bonuses for faster rates of Chipotle openings — a strange strategy, MarketWatch noted, considering that the overall size of a company isn’t of much interest to investors, who are largely concerned with shareholder returns.

Also, Chipotle was one of the hottest picks on Wall Street at the beginning of this year, with 18 of 30 analysts calling it a buy and the rest remaining neutral. So many investors thought it was a sure win.

It’s a sign that even when you think you know the market, you don’t.

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