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AP Photo / Stephen Brashear
Chipotle founder and CEO Steve Ells.
DAY OF RECKONING

Chipotle finally solved its problem with long lines

By Alison Griswold

Once upon a time, Chipotle’s biggest problem was long lines. The fast-casual empire seemed impervious to everything. Rising prices didn’t faze it, nor did the threat of a guacamole crisis. Consumers wanted to buy Chipotle’s burritos, and Chipotle just had to keep them moving.

Well, E. coli took care of that. Chipotle said Tuesday (Feb. 2) that sales at restaurants open at least 13 months plummeted 14.6% for the quarter ended Dec. 31 2015. That was exactly what Chipotle predicted for the period in January, but apparently not sufficient to reassure investors. Profit also fell 44% and revenue 6.8%. After an initial bump, Chipotle’s stock edged down about 2% in after-hours trading.

The last quarter was a rare stumble for Chipotle. Since going public 10 years ago, Chipotle has fashioned itself as a darling of American dining. Chipotle built its reputation by promising the speed and convenience of McDonald’s, but the freshness and quality of a local restaurant. Consumers loved it. From January 2006 to September 2015, sales at Chipotles around the country only grew—often by double digits.

But then came this past fall, and reports that health officials were tracing several reports of E. coli to Chipotle’s restaurants. Over the next three months, that outbreak expanded to 55 people across 11 states. A second, smaller E. coli outbreak that sickened five people in three states was also linked to Chipotle’s food. And in an unrelated but equally nightmarish incident for the company, a norovirus outbreak at a Chipotle in Boston’s Cleveland Circle neighborhood ultimately sickened more than 140 students at Boston College.

Suddenly, no one wanted Chipotle’s burritos anymore. Chipotle founder and co-CEO Steve Ells went on NBC’s Today to apologize and talk up the company’s efforts to overhaul its food safety protocols, but the damage was done. The 2016 year would ”be messy in terms of margins, it’s going to be messy in terms of earnings,” Chipotle chief financial officer Jack Hartung told investors at a conference in January. Since E. coli was first linked to Chipotle’s food, the stock has shed about 25%.

Chipotle’s fall from grace has looked even more startling alongside McDonald’s sudden ascent. As Chipotle was basking in success for the last several years, McDonald’s—its former parent company—was struggling to reclaim a market that had grown weary of its processed meals and burger-and-fries format. But last fall those fortunes reversed. Just as Chipotle started wrestling with E. coli, McDonald’s rolled out all-day breakfast to the entire US. And in January, McDonald’s reported its best quarterly results in the US in four years.

Chipotle is clearly hoping to move on from the spate of health woes. Officially, the chapter closed on Monday (Feb. 1), when the US Centers for Disease Control and Prevention said both of Chipotle’s E. coli outbreaks appeared to be over. “The fourth quarter of 2015 was the most challenging period in Chipotle’s history,” Ells said in the company’s earnings release. ”We are pleased to have this behind us and can place our full energies to implementing our enhanced food safety plan that will establish Chipotle as an industry leader in food safety.”

Whether consumers will be so quick to forget, of course, is another question.