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CMG Stock: Off-Base Tweet Shows Chipotle Mexican Grill, Inc. Is Still Vulnerable

Just when it looks like Chipotle Mexican Grill, Inc. (NYSE:CMG) is going to be able to put the whole E. coli thing behind it, a little ill-timed news brings all those ugly memories back for consumers. This morning, news broke that one of a Manhattan store’s customers became ill shortly after eating at the popular burrito venue. Chipotle stock fell nearly 3% as a result.

CMG Stock: Off-Base Tweet Shows Chipotle Mexican Grill, Inc. Is Still Vulnerable

A link between the eatery’s food and the illness has not yet been established; there may be no link. But, it doesn’t matter. Guilt by association (and history) is enough to pull the rug out from underneath a wide swath of the CMG damage-control effort to date.

Is CMG the Source?

Just to be crystal clear, none of the presumptions that Chipotle food was the cause of the illness in question have been validated. A Twitter Inc (NYSE:TWTR) “tweet” is all it took to stir the proverbial pot. Eric Van Lustbader @EVanLustbader tweeted:

“This Chipotle thing is still ongoing. My editor ended up in urgent care after being deathly ill all night from eating at Chipotle’s.”

Yes, that’s the same Eric Van Lustbader that penned the Jason Bourne novels that were later turned into films. His notoriety may have given the tweet a bit more credence than most tweets might muster, explaining the ease with which the post, at one point on Thursday, had Chipotle stock down as much as 7%.

Responses to the tweet — and an exchange among other Twitter users about the Lustbader note — eventually drew out the fact that Chipotle wasn’t confirmed as the cause of the illness, though Lustbader did later say bacteria was the culprit. E. coli is a bacterium. It can come from a variety of sources, however.

Perhaps the biggest question arising from the Lustbader tweet is when his editor ate at Chipotle Mexican Grill. The tweet would suggest immediately before the onset of the symptoms. But, it typically takes three to four days to exhibit symptoms. That’s why it’s often difficult to determine the true source when there’s only one individual exhibiting symptoms. It could have come from many places.

To that end, Chipotle Mexican Grill offered a statement on the matter:

“We are aware of the post made on Twitter, however there have been no reports of illnesses at any of our New York restaurants. Moreover, we have excellent health department scores throughout the city, and we continue to have the highest standards of food safety in our restaurants.”

In retrospect, Lustbader’s tweet was so far unfair. Yet …

Bottom Line for Chipotle Stock

Whether or not Lustbader’s comments and consumer’s subsequent assumptions are fair is irrelevant to current and would-be owners of CMG stock. What’s noteworthy is the fact that Chipotle has been linked with food poisoning in consumers’ minds, and is struggling to break that link.

Lustbader just demonstrated that, going forward, the knee-jerk assumption would easily be that Chipotle is the root cause of nasty stomach bugs.

Giving (dis)credit where it’s due, the restaurateur didn’t help itself on that front. It downplayed the initial stages of the November breakout and then inexplicably argued with the CDC about the nuances of how it handled the matter, which sickened a total of 55 before finally being contained. Such an offensive stance implies the company is trying to hide something rather than address and solve the underlying problem.

Even if Chipotle had been a little more humble, however, it wouldn’t have been able to avoid flare-ups like today. The seed is planted. Only time and/or a new mental link will uproot that now-growing plant.

The irony: CMG unveiled a new video on Tuesday that was intended to replace a troubled affiliation with E. coli with a more positive one regarding the restaurant chain’s food and image.

I still stand by my April 28 assessment:

“What Chipotle needs to do to win back customers is much, much bigger. It may well involve a complete re-imaging and re-positioning of the company, if management doesn’t want to simply wait it out (as I would suggest) and let the E. coli wound heal on its own. Whatever the case, my stance is the same … CMG is only a buy for the true long-termer, based on the strength of the concept and its food value.”

Lustbader just restarted that clock.

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

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