Is Chipotle’s Commitment Towards Food Safety The Beginning Of A Turnaround?
As the company struggles with declining customer traffic due to food safety issues, Chipotle Mexican Grill (NYSE: CMG) announced in February that it is committing $10 million to provide education, training and financial assistance to help small farmers meet its new food safety requirements. Incidents of food poisoning at various locations have yet to be tied to a single cause. Yet Chipotle sources some of its ingredients from local farmers and this is thought to be a contributing factor. The company is thus focused on helping smaller local suppliers to meet the company’s high food safety standards. The financial commitment is aimed towards providing assistance to these local farmers to cover the high costs of enhanced food safety practices. The company’s revenue fell a significant 6.8% in the recently reported quarter and comparable restaurant sales were down 14.8%, due to the impact of viral food poisoning at a number of its locations. We believe that, as the company struggles to recover from this impact with measures to restore consumer confidence, demonstrated efforts to maintain high food safety standards will be key for its future growth.
See Our Complete Analysis For Chipotle Mexican Grill
Strengthening The Supply Chain Would Be Key For Food Safety
- Rising 25% Year To Date, Will Q1 Results Drive Chipotle Stock Higher?
- Up 11% Already This Year, Does Chipotle Stock Have More Room To Run After Q4 Results?
- Up 30% This Year, Will Chipotle Stock Rally Further Following Q3 Results?
- What To Expect From McDonald’s Stock Post Q2 Results?
- Chipotle’s Stock Up 50% Over Six Months. What’s Next?
- Chipotle Stock Looks Attractive at $1552
Chipotle’s restaurants in nine states in the U.S. were impacted by the e-coli outbreak. The geographical spread of the virus indicated that it was originated by a supplier and despite investigations continuing since November; the company has not been able to zero in on the exact source of the outbreak mainly due to the fact that Chipotle sources several ingredients from many local farmers. This makes its extremely important for the company to apply high standards of food safety to its suppliers to prevent a future outbreak. Chipotle is taking necessary steps, including a financial commitment to ensure that these standards are applied and implemented to restore the lost consumer confidence. While the company reported a 14.6% decline in comparable sales in Q4 2015 (as noted), it expects to be on track to open 220-235 new restaurants in 2016. (Read Chipotle Mexican Grill FY 2015 Earnings Review: E.Coli Scandal Hinders Top-line Growth)
The company recently held a presentation for all its employees which led to a delayed opening of its restaurants on that day, to go over new food safety procedures. While employees were instructed to report immediately if they are sick, trained on new safety procedures for handling food, the company also urged them to be extremely hospitable as it works to win back customers.
Chipotle is taking the right steps to enhance its food safety standards and working on marketing efforts to attract customers however the results might not be visible immediately. Although the company appears to be confident about opening new restaurants, the declining same store sales continue to remain a concern. Reports suggest that a senior management change might be on the cards in 2016. While these all appear to be turnaround initiatives, in the world of social media where bad news travels extremely fast, it might take Chipotle a long time to recover from this crisis and regain its lost glory.
View Interactive Institutional Research (Powered by Trefis):
Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap