Chipotle's Operational Problems Make People Sick

Apply the knowledge of Management presented in this chapter to the following case. Applying this knowledge should enable you to have a better understanding of the operational problems at Chipotle.

Read the case below and answer the questions on the right.

Steve Ells, Chipotle's co-chief executive officer, founded the company in 1993. It has expanded to more than 1,900 locations and over 59,000 employees.

Chipotle was built on the idea that is possible to deliver a fast-food experience relying on "high-quality raw ingredients, classic cooking techniques, and distinctive interior design." In other words, fast-food service would resemble a fine dining experience. This idea morphed into the marketing slogan "Food With Integrity." Chipotle's commitment reflects the company's "devotion to finding the very best ingredients we canwith respect for animals, farmers, and the environment."¹¹⁰Its marketing messages claimed that its fresh ingredients and naturally raised meat were better than those of competitors and better for all humanity. The goal was to position the fast-food chain as a healthy choice.

Healthy Choice?

Chipotle encountered a crisis in 2015. It began when 234 customers and employees were infected with a norovirus at a Chipotle in Simi Valley, California in August. According to the government's Centers for Disease Control (CDC), a "Norovirus is a very contagious virus that can infect anyone. You can get it from an infected person, contaminated food or water, or by touching contaminated surfaces. The virus causes your stomach or intestines or both to get inflamed. This leads you to have stomach pain, nausea, and diarrhea and to throw up. These symptoms can be serious for some people, especially young children and older adults."¹¹¹The virus is often transmitted when people fail to wash their hands after using the bathroom.

Sixty-four more people became sick in August and September from salmonella-tainted tomatoes eaten at 22 outlets in Minnesota; nine were hospitalized. In November, norovirus was found again, this time in people eating at a Chipotle's in Boston. One hundred forty Boston College students became ill, along with 16 students and three health care professionals who came in contact with infected people. The source of this outbreak was a sick employee who was not sent home after reporting to work.

Then 55 people were infected with theE.colibacteria in 11 states. The majority of cases were found in Oregon and Washington in October 2015, and 21 people were hospitalized. In December, the CDC verified that five more people in three states had contacted a different and rare type ofE.coli. The common factor across the cases was eating a meal at a Chipotle Mexican Grill restaurant.¹¹²All told, public health officials estimate that about 500 people around the United States became sick after eating at Chipotle.¹¹³

The inconsistency between the marketing theme of "Food with Integrity" and the food-related illnesses tainted the company's reputation and business results.Bloomberg Businessweekreported that Chipotle's stock dropped 30% between August and December 2015, and sales dropped 16% in November.

Did Chipotle's Supply Chain and Work Processes Contribute to the Problem?

Chipotle uses about 100 suppliers for its meals, as well as local farms from which the company prefers to get its fresh produce. Local farms are within 350 miles of a restaurant and contribute about 10 percent of the produce. Meats come from various sources in the United States and Australia. "Chipotle began importing beef from Australia two years ago because it could not find enough domestically raised grass-fed beef to meet growing demand," said CEO Steve Ells.¹¹⁴The company also employs high-end commissaries to prepare some food items.Bloomberg Businessweeknoted the source(s) of E.coli came from somewhere in this supply chain.¹¹⁵

According toCNN Money,"Neither Chipotle nor the CDC has been able to determine what specific food is the cause of the disease [E.coli]. The CDC said that 'a common meal item or ingredient served at Chipotle Mexican Grill restaurants in several states is a likely cause of this outbreak."¹¹⁶The CDC also said Chipotle had been very cooperative during its investigation, but "when a restaurant serves foods with several ingredients that are mixed or cooked together and then used in multiple food items, it can more difficult for epidemiologic studies to identify the specific ingredient that is contaminated."¹¹⁷

Although the company has standards and protocols in place for handling and processing food, some think Chipotle did not go far enough. AForbesreporter concluded that "Chipotle is a company so out of control and negligent that it repeatedly endangers the public." He based this harsh conclusion partly on a statement the company made in a report to the Securities and Exchange Commission. Chipotle said, "We may be at a higher risk for food-borne illness outbreaks than some competitors." The reported also stated that these illnesses were more likely "due to our use of fresh produce and meats rather than frozen, and our reliance on employees cooking with traditional methods rather than automation." The reporter concluded by wondering "whether Chipotle's 'traditional methods' include employees' neglecting to wash their hands before preparing foods, which is how norovirus is usually spread."

The Company Makes Operational Changes

The company closed its stores in Oregon and Washington in November 2015 to determine the cause of theE.colioutbreak. CEO Ellis visited theTodayshow in December and "apologized to everyone who'd fallen ill, and announced a comprehensive food-safety program that he said would far excel industry norms." He never explained why the company had not instituted more rigorous safety standards, but he noted that Chipotle "will shift more food preparation out of restaurants and into centralized kitchens."

Before re-opening the restaurants in Oregon and Washington, Chipotle took the following actions:

• Confirmed that no employees in these restaurants were sickened.
• Expanded testing of fresh produce, raw meat, and dairy items before restocking restaurants.
• Implemented additional safety procedures and audits in all its 2,000 restaurants to ensure that robust food safety standards were in place.
• Worked closely with federal, state, and local government agencies to ensure that robust food safety standards were in place.
• Conducted additional deep cleaning and sanitization in all its closed restaurants (also to be done at all restaurants nationwide).

Chipotle went one step further by hiring Mansour Samadpour, head of IEH Laboratories & Consulting Group, to develop a broader and more extensive food safety program.Bloomberg Businessweekconcluded that Samadpur's plan includes "changes at every step of Chipotle's system. More food will be prepared ahead of time, out of sight at commissaries, and transported to 19 distributions centers. . . produce will be screened for pathogens in small batches using what Chipotle calls high-resolution DNA-based tests." The company also instituted the following operational changes:^k

• Cheese will now arrive in restaurants pre-shredded.
• Ingredients like onions will be macerated with lemon or lime juice to kill germs.
• 60 samples of every 2,000 pounds of steak will be tested before the meat is sent to stores.
• Tomatoes, cilantro, and other ingredients will be chopped in centralized locations rather than in stores, so they can be tested.

What Next?

Chipotle is actively trying to attract former and new customers. The company is offering "burrito giveaways and free chips with guacamole or salsa." It also launched an advertising campaign including direct-mail coupons. Company executives "described the early giveaways as a success and said the gap between free versus paid entrees had narrowed. The company also announced plans for more freebies."

Operationally, the new safety standards will be too expensive for small local farms to accommodate, leading to less use by Chipotle of local produce. A blogger noted that "the decision to move away from the chain's preference for local produce, when available, for its burritos, salads and rice bowls is a significant shift for the fast-casual chain, which has prided itself on providing fresher ingredients than its competitors."

Time will tell whether the operational changes at Chipotle bring its customers back.

110"Our Company,"https://chipotle.com/company, accessed July 18, 2016.

111"Norovirus," Centers for Disease Control and Prevention,http://www.cdc.gov/norovirus, last updated April 26, 2016.

112"FDA Invesigates Multistate Outbreak of E.coli 026 Infections Linked to Chipotle Mexican Grill Restaurants," February 1, 2016,http://www.fda.gov/Food/RecallsOutbreaksEmergencies/Outbreaks/ucm470410.htm.

113S. Berfield, "The Sustainable Locally Sourced Free-Range Humanely Raised Made-To-Order Toxic Burrito,"Bloomberg Businessweek,December 28, 2015 - January 10, 2016, pp. 44-49.

114H. Peterson, "There's a New Theory About the Source of the Chipotle E.coli Outbreak,"Business Insider,February 5, 2016,http://www.businessinsider.com/chipotle-source-of-e-coli-outbreaks-2016-2.

115S. Berfield, "The Sustainable Locally Sourced Free-Range Humanely Raised Made-To-Order Toxic Burrito,"Bloomberg Businessweek,December 28, 2015 - January 10, 2016, pp. 44-49.

116P. R. La Monica, "Can Chipotle Recover From E.coli Outbreak?" December 8, 2015,http://money.cnn.com/2015/12/07/investing/chipotle-stock-e-coli/index.html.

117P. R. La Monica, "Chipotle E. coli Outbreak 'Appears to be Over,' Says CDC,CNN Money,February 1, 2016,http://money.cnn.com/2016/02/01/investing/chipotle-cdc-e-coli/index.html.

The safety and quality of food at Chipotle restaurants falls under the ___________ perspective of the Balanced Scorecard.

Multiple Choice

• internal business
• financial
• customer
• supplier
• innovation and learning