Upcoming Closure Only a Band-Aid for Chipotle Stock (CMG)

The E. coli outbreak is winding down, but the fallout is just beginning

Really, Chipotle Mexican Grill, Inc. (CMG)? Really? You infect an estimated 52 people with E. coli in 12 different states, send Chipotle stock down as much as 30% on the outbreak, inspire a class action lawsuit from frustrated CMG stock holders, and your solution is closing shop for a few hours next month to review your safety and cleaning procedures?

Upcoming Closure Is Only a Band-Aid for Chipotle Stock (CMG)To put it bluntly, you missed the point.

OK, to be fair, no restaurant can ever invest too much time or money in cleanliness, safety and quality (at least from a consumer’s point of view).

From a Chipotle stock holder’s point of view, though, it just feels more like a public-relations ploy than a consumer-related solution.

That said, the only thing that can solve Chipotle’s issues is time.

A Chipotle Pow-Wow

You may want to call ahead if you’re planning to swing by a Chipotle Mexican Grill on Monday, Feb. 8. That day, the organization will hold a company-wide meeting, briefly shutting down all of its stores to ensure every employee is brought up to speed with Chipotle’s food safety guidelines.

The event won’t be a cheap: Aside from paying employees for their time, it stands to reason that the restaurant will lose business during the meeting. That alone makes a key point as to the importance of the message. Maybe.

Outside of the upcoming meeting, Chipotle partnered with a food safety expert to test Chipotle’s ingredients before delivery to individual restaurants.

It’s all commendable stuff, but will it be enough? The real question is, can the Chipotle brand regain its image among consumers in the foreseeable future?

Probably not.

Double-Edged Swords

There are two layers to every gaffe. As Wharton’s Jason Riis explained:

“One is on the ground, in terms of the levels of disgust people may now feel going into a Chipotle outlet where they may feel they may get sick, and that is going to keep anybody away from any restaurant that is associated with this. The second is … the overall threat to its brand.”

The first layer is arguably being addressed. The more deep-seated ding to the chain’s reputation, however, does not have a quick fix.

Either way, the recent E. coli outbreak is subtly underscored by the revelation of Chipotle’s supply sources.

Ironically, in its effort to bring fresh, high-quality food to customers, a great portion of its ingredients are sourced regionally, if not locally. The sheer number of suppliers it deals with can make it more difficult to identify the true source of a food-borne illness.

As president-elect for the Agricultural and Applied Economics Association Jayson Lusk plainly said in December:

“If you want to make products fresh, that means you’re not going to use a preservative or it’s going to be unprocessed. It does provide a real tradeoff in terms of providing a safe product for the consumer.”

With that as a backdrop, the company’s new safety-inspection plans are only an intermittent spot check. Not every shred of lettuce is being looked at.

It’s a reality that leaves Chipotle stock between a rock and a hard place, and there’s no amount of PR that’s going to erase that from consumers’ minds anytime soon.

Bottom Line for Chipotle Stock

This isn’t a call for Chipotle to simply give up and close shop. It is to warn current and would-be owners of Chipotle stock that a revamp of the company’s safety and cleanliness practices aren’t going to woo consumers back into its restaurants in droves come Feb. 9.

It could take a few months, if not entire quarters, for Chipotle’s business to recover. In the meantime, Chipotle stock could be tough to own.

The market’s going to see right through the well-publicized pow-wow three weeks from now.

The good news is that consumers eventually forgive and even forget. Remember, Chipotle had before fallen victim to E. coli, norovirus and even hepatitis A outbreaks.

None of them killed the company, though all of them made it tough for a while.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/01/chipotle-mexican-grill-inc-cmg-stock-e-coli-norovirus/.

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