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Chipotle Mexican Grill’s Strategy in 2018: Will the New CEO Be Able to Rebuild Customer Trust and Revive Sales Growth?

Arthur A. Thompson The University of Alabama

Headed into August 2015, Chipotle (pronounced chi-POAT-lay) Mexican Grill’s future looked rosy. Sales and profits in the first six months of 2015 were at record-setting levels, and expectations were that 2015 would be the company’s best year ever. But a series of events occurred over the next five months that alarmed customers, drove down sales at Chipotle restaurants, and proved frustrating for Chipotle top executives to fix.

• In August, a salmonella outbreak in Minnesota sickened 64 people who had eaten at a Chipotle Mexican Grill. The state’s Department of Health later linked the illness to contaminated tomatoes served at the restaurant.

• In August, 80 customers and 18 employees at a Chipotle Mexican Grill in Southern California reported gastrointestinal symptoms of nausea, vomiting, and diarrhea that medical authorities and county health officials attributed to “norovi- rus.” Norovirus is a highly contagious bug spread by contaminated food, improper hygiene, and con- tact with contaminated surfaces; the virus causes inflammation of the stomach or intestines, leading to stomach pain, nausea, diarrhea, and vomiting. After the reported food poisoning, the restaurant voluntarily closed, threw out all remaining food products, and sent home the affected employ- ees. Employees who tested positive for norovirus

remained off duty until they were cleared to return to work. County health officials also inspected the facility on two occasions and rendered passing grades, despite finding several minor violations. The restaurant reopened the following day, and no further food poisoning incidents occurred.

• In October, 55 people became ill from food poisoning after eating at 11 Chipotle locations in the Portland, Oregon, and Seattle, Washington areas. Medical authorities attributed the illnesses to a strain of E. coli bacteria typically associated with contaminated food. Most ill people had eaten many of the same food items, but subsequent testing of the ingredients at the 11 Chipotle restaurants did not reveal any E. coli contamination. (When a restaurant serves foods with several ingredients that are mixed or cooked together and then used in multiple menu items, it is difficult for medical studies to pinpoint the specific ingredient or ingredients that might be contami- nated.) State and federal regulatory officials reviewed Chipotle’s distribution records but were unable to identify a single food item or ingredient that could explain the outbreak. Nonetheless, out of an abun- dance of caution, Chipotle management voluntarily closed all 43 Chipotle locations in the Portland and Seattle markets, pending a comprehensive review of

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Copyright ©2019 by Arthur A. Thompson. All rights reserved.

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Case 12 Chipotle Mexican Grill’s Strategy in 2018 C-121

the causes underlying the food contamination and a check of whether any of Chipotle’s food suppliers were at fault. Chipotle management worked in close consultation and collaboration with state and federal health and food safety officials (including personnel from the Centers for Disease Control and Prevention, the U.S. Department of Agriculture’s Food Safety and Inspection Service, and the U.S. Food and Drug Administration) throughout their investigation of the incident and also launched a massive internal effort review of the company’s food preparation and food safety procedures. These internal actions included:

1. Confirming that more than 2,500 tests of Chipotle’s food, restaurant surfaces, and equipment all showed no E. coli.

2. Confirming that no employees in the affected res- taurants were sickened from the incident.

3. Expanding the testing of fresh produce, raw meat, and dairy items prior to restocking restaurants.

4. Implementing additional safety procedures and audits, in all of its 2,000 restaurants to ensure that robust food safety standards were in place.

5. Working closely with federal, state, and local gov- ernment agencies to further ensure that robust food safety standards were in place.

6. Replacing all ingredients in the closed restaurants. 7. Conducting additional deep cleaning and sanitization

in all of its closed restaurants (followed by deep clean- ing and sanitization in all restaurants nationwide).

Meanwhile, the Federal Drug Administration sought to identify a cause for the outbreak. The FDA’s investigation revealed no ingredient-related cause and no evidence that particular suppliers were the source of the outbreak. Ultimately, no food item was identified as causing the outbreak and no food item was ruled out as a cause, although fresh produce was suspected as the likely cause.