Chipotle Mexican Grill’s (CMG) management has always been prompt and at times preemptive in fending off concerns that may hurt the company’s policy of serving “food with integrity.” For example, in the past, Chipotle suspended its supplier when it found that the vendor did not meet the protocol for treating animals.
The company regularly posts updates and educates its customers on its food. This level of transparency could make Chipotle unique in the minds of its customers.
Following this first E. coli outbreak, Chipotle’s shares fell almost 12%. However, more cases emerged in early December in New York, Ohio, California, Maryland, and Illinois. This time around, the stock fell another 7%.
A diversified portfolio such as the Consumer Discretionary Select Sector SPDR ETF (XLY) may help to mitigate such specific risk. XLY invests 1% in Chipotle and an overall 10% in restaurant stocks. This includes companies such as Darden (DRI), Yum! Brands (YUM), and McDonald’s (MCD).
The company reacts
Following the E. coli event, the company has taken several measures to ensure that it doesn’t lose customers’ trust.
Chipotle is set to close all of its restaurants on February 8, 2016, between 11:00 a.m. and 3:00 p.m. to inform its employees about the measures taken by the company related to the food safety issue. The following are some points to note:
- Before the ingredients are shipped out to the restaurants, Chipotle will conduct what it calls a “high-resolution DNA-based testing” of the ingredients. It also stated on its website that this program “far exceeds requirements of state and federal regulatory agencies, as well as industry standards.”
- The company will implement changes to how the food is handled and prepped. This includes changes in the cutting and washing of produce, procedures around how proteins such as steak and chicken are maintained, and changes to how food is handled in the company’s central kitchen.
- The company will also conduct further training regarding its food handling and safety and offer paid sick leave to employees.
With the panic and uncertainty arising from the above situation, let’s see what analysts are expecting from Chipotle’s upcoming earnings.