Chipotle Stocks Drop after E. Coli Outbreak

Shares of Chipotle plunged 12% and closed at $536.19 on Friday, shortly after the CDC warned that an E. coli outbreak that seems to be linked to the restaurant has expanded to six states. This is unfortunate news for the chain, which had just reopened 43 restaurants in both Seattle and Portland after the first identified outbreak in late October. Friday was the worst stock drop the company has experienced in three years, plus the stock was already down 11% due to concerns over slowing growth. In total, the stock has dropped 22% this year.

The CDC found new chipotle-linked E. coli cases in the additional states of California, Minnesota, Ohio, and New York. This may signal a longer-term problem for the company. However, in a statement released on Friday, the company said that the source of the problem had been contained in October during the first outbreak, but that it is not unusual to see additional cases after the initial incident. In response these issues, Chipotle has taken aggressive steps, including hiring a safety consultant, to ensure its restaurants are free of health concerns. The company also noted that no new cases have been found in Washington and Oregon.

The fact that the poisoning has spread across different regions of the U.S., can have a national impact on the company’s brand, which is built on the image of fresh, wholesome food. This problem follows a salmonella outbreak in September that were liked to tainted tomatoes. Although American consumers have demonstrated a high tolerance for food related health scares, Data from YouGov BrandIndex shows that Chipotle might have a problem having customers return. Even before Friday’s E coli news, the brand perception had sunk to its lowest point since 2007.

Bloomberg Business

Bloomberg Gadfly

By: Luisa Gonzalez

 

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