CMG Stock Could Recover Stronger Than Ever
Chipotle Mexican Grill, Inc. (NYSE:CMG) is one of the most popular and fastest growing Mexican fast food chains in the United States; indeed, considering that it has opened its largest location in Paris, France, Chipotle is one of the fastest-growing fast food chains in the world. But Chipotle stock has lost considerable value over the past few days, dropping to about $540.00, as investors have responded to the U.S. Centers for Disease Control and Prevention (CDC) announcement that three additional states have reported the suspected presence of E. coli in the company’s restaurants.
E. coli is a problem that has affected many food establishments and Chipotle stock is suffering from an overreaction in the markets and media. Chipotle is one of the finest fast food chains and its business model is based on the idea of high-quality, healthy, delicious food, which it delivers to tens of thousands of customers worldwide every day.
Chipotle’s Model Revolves Around Healthy Food
Chipotle has a policy of indicating the number of calories for each of its offerings and the food is good, even if critics might note it is not especially bold. The lack of “edge,” however, is what has helped Chipotle gain unexpected demand, generating the kind of competition capable of persuading even such fast food giants as McDonald’s into adopting major changes to their fast food models.
The CDC said that 52 people with the bacteria have now been identified in nine states: California, Illinois, Maryland, Minnesota, New York, Ohio, Oregon, Pennsylvania, and Washington. Of the 52 patients interviewed, 47 reported having eaten at a Chipotle Mexican Grill restaurant during the week before the onset of the illness, as the CDC reports.
Chipotle has already adopted measures to deal with the problem, noting it has improved controls through food security, including the establishment of fresh produce tests before they are delivered to restaurants. Indeed, Chipotle has reopened restaurants in Seattle and Portland after tests ruled out the presence of E. coli bacteria. The company voluntarily closed all restaurants in the areas where E. coli was found, regardless of whether or not the restaurant was implicated, as an extra security measure. (Source: “What to know about the E. coli outbreak that’s linked to Chipotle,” TIME, November 2, 2015.) In other words, all Chipotle locations that are open for business have been deemed free of E. coli, though the vast majority of the closed restaurants were only shut down as a precautionary measure.
Founded in 1993, the Denver-based chain now has about 2,000 restaurants, primarily in the United States, and has used the quality of its “raw materials” as the centerpiece of its business approach. The restaurants are known for having banished genetically modified ingredients from its burritos and tacos and the use of meat from animals raised with antibiotics.
E. Coli Is a Frequent Risk for All Restaurants
E. coli is hardly unique to Chipotle; it is a frequent problem for restaurants. Unpasteurized apple cider, lettuce, and soft cheeses, among many other food items, can easily spread the bacteria. Meat can also become contaminated during slaughter, while even the healthiest raw fruits and vegetables can pick up E. coli if washed with contaminated water. A cooking surface can also spread E. coli at any point in the cooking process. Generally, investigators try to trace the bacteria to a particular food item, because this will help identify the source of the bacteria and prevent further contamination and outbreaks. (Source: Ibid.)
Nevertheless, Chipotle has “taken aggressive actions to implement industry-leading food safety and food handling practices in all of its restaurants and throughout its supply chain.” Moreover, Mansour Samadpour, CEO of IEH Laboratories and Consulting Group, Chipotle’s food safety consultant, said, “this program eliminates or mitigates risk to a level near zero and will establish Chipotle as the industry leader in this area.” (Source: “Chipotle E. Coli outbreak now linked to illness in 9 states,” CNN, December 4, 2015.) It should also be stressed that no further cases have been reported since the initial ones in early November and no deaths have been linked to the outbreak.
The restaurant chain is doing everything possible to manage the situation and has also performed responsibly, demonstrating good management. Indeed, Chipotle stock is now at a bargain price and the restaurant chain remains one of the better prospects in the food sector; after all, Chipotle did become one of the most popular restaurant chains by accident.
Chipotle stands proudly as a favorite among fast food establishments. It has a good brand image; the company understands the value of branding and how to operate in such a way as to fulfill the brand’s established promise. The chain has managed to make people excited about the product. The Chipotle brand sells food, sure, but more specifically, it sells “sustainable food” that appeals to a new generation bombarded with notions of social and environmental responsibility.
As one Bloomberg article notes, “Abercrombie & Fitch sells sex. Harley-Davidson sells rebellion. Chipotle sells idealism.” (Source: “Chipotle adds organic hoodies to burritos to boost sales,” Bloomberg, January 29, 2013.)
Chipotle belongs to that segment of the fast food industry known as “fast-casual.” Its restaurants are spreading at the expense of the more traditional food giants, like Burger King and McDonald’s, introducing a new model to the industry. They use everything from a fresh logo to fresh ingredients in an effort to project environmental responsibility.
Chipotle, for instance, which shareholders have been “punishing” for the E. coli outbreak, was also the same restaurant chain that removed pulled pork from the menu, because its supplier no longer met its standards on animal welfare. (Source: “Chipotle Pulls Pulled Pork from 600 of Its Restaurants,” TIME, January 14, 2015.) This hurt sales, but it also shows to what extent Chipotle goes to ensure its standards are met. This means that once the source of the E. coli outbreak is identified, Chipotle shareholders can be assured that the company will do everything possible to reduce the risk of similar incidents.