Chipotle's Struggle with Food Safety* When five customers entered the Chipotle restaurant, Seattle, Washington, in July of 2015, they placed their normal orders...burritos, bowls, tacosyou name it. These customers expected to indulge in what they had come to love over the years, what Chipotle has preached since opening its doors in 1993, "Food with Integrity." Real, fresh, responsibly raised ingredients that "just taste better."1 Unfortunately, for these five patrons, integrity was not served up on that summer day. Approximately three days after consumption, the symptoms of an E. coli bacterial infection began to set inupset stom- ach, body aches, sporadic cramping, and worst of all, persistently bloody stools. The infected people were able to trace their ingestion of bacteria back to their beloved Chipotle meals.2 However, the source ingre- dient of this particular outbreak was not immediately determined. Unfortunately, this incident was just a precursor of the crisis to come. Months later, in December of 2015, Boston College students flocked to their local Brighton, Massachu- setts Chipotle restaurant, looking for a quick and hearty meal. Members of the varsity men's basketball team, club hockey players, and many others were expecting to have their cravings satisfied as usual and placed their orders without hesitation. However, like the Chipotle patrons in Seattle, the students became ill shortly after they ate their food. *This case was written by Thomas Hart, Bentley University, in 2016. Unbeknownst to the diners, the chicken that had been prepared in the restaurant was not kept at a warm enough temperature in the assembly line. The lack of heat combined with workers showing physical symptoms of illness provided the perfect breeding grounds for a Norovirus to spread. Like an E. coli infection, a Norovirus infection is not instantaneous, so these folks still enjoyed their meals, but they cer- tainly paid for them later on. The students found themselves with persistent diarrhea, painful stomach cramps, fevers, and vomiting.3 The problems did not stop with this incident. Within weeks of the Boston incident, outbreaks of E. coli from Chipotle meals began to occur across the nation with no explanation as to their origins. The company's stock price began to slide, making the fall of 2015 a very difficult quarter for Chipotle. Overall, from July to December 2015, there were over 10 reported outbreaks nationwide, ranging from E. coli to Norovirus to Salmonella. At least 500 people across 13 states were affected by the outbreaksluckily, no deaths were reported.4 TWELVE MONTHS EARLIER... In January of 2014, Chipotle was ranked by The Daily Meal as the number one Tex-Mex chain restaurant in America, beating out Baja Fresh, Qdoba, and Moe's Southwest Grill. The ranking, published in USA Today, noted how the chain produced fresh and tasty food, with customers appreciating the fresh and local supply of food.5 Everything seemed to be great for Chipotle, with revenues up almost 28 per- cent from 2013 to $4.11 billion. Stores were continu- ously opening nation and worldwide, with furth plans of expansion in the future. Additionally, stock- holder earnings for 2014 had increased 35 percent from the prior year.6 Customers (and investors) were extremely satisfiedin fact; even President Obama visited the chain, hosting a roundtable chat with working families in August of 2014 at a location in Washington, D.C. Chipotle appeared to be unstop- pable, as if nothing could stand in its way.7 THE HISTORY OF CHIPOTLE Steve Ells, the founder of Chipotle, is a man who has always enjoyed cooking. Ells began cooking at a very young age, as his mother would put him to work in the kitchen helping her bake and prepare meals. As he grew, it was not uncommon in high school and college for Ells to host elaborate dinner parties for his friends and family, where he would serve them with delicious meals. Upon completion of his under- graduate degree and unsure of where he was going to go next, the aspiring chef made a deal with his father. He had to work for a year in the restaurant industry to ensure that he truly wanted to be in the business, and then his father would pay for culinary schoolbut, it had to be "the best culinary college in America."8 Ells held up his end of the bargain and went on to the Culinary Institute, graduating in 1990. After grad- uating, Ells soon moved to San Francisco where he gained both experience as a sous-chef and an appre- ciation for Mission-style burritos. Ells was not just attracted to San Francisco's Mexican food itself, but the way it was prepared and packaged, the simplicity of a foil wrap with everything tucked away inside. After receiving a loan from his father and locking down a storefront, Ells opened the first Chipotle res- taurant in Denver in July of 1993. No recipes, no calculated formulas, just fresh ingredients for customers to look at and choose fromthis is the way Ells designed his business so that it would be extremely simple to manage and operate, because, in his words, "I didn't want to spend much time there."9 The first restaurant had no individual menus and no menu board as you see when you walk into a current-day Chipotle. Cus- tomers were supposed to order what they wanted based on what they saw in front of them. Although reportedly some customers walked back outside con- fused, the majority were happy that they had so many fresh food options. Ells was fast to respond to customer demands and quickly created the con- cept of the burrito bowl when he was trying to shed the tortilla. He wanted all of his customers to enjoy their meals, leaving them with a desire to come back again. It was not long before the business started to take off. The first few Chipotle restaurants were estab- lished with the help of Ells' parents; however, Ells soon realized that larger investors would be neces- sary to continue to fuel the company's growth. Ells' parents were able to gather just over $1 million from close friends and then they began to hunt for larger contributors. In 1998, when Chipotle had just 13 stores opened, McDonald's invested approximately $50 million. More significant than the cash received, Chipotle gained access to McDonald's supply chain, construc- tion knowledge, and vast industry knowledge because of the buy-in. The two chains had an interesting rela- tionship in that the only common menu items were the soft drinks. From 1998 to McDonald's divestiture in Chipotle in 2006, the chain grew to just over 500 restaurants, and its growth did not cease after parting ways with McDonald's.10 Today, Chipotle boasts over 1,900 locations.11 PROMISING STOCK PRICE BEGINS TO FALL The company's initial public offering (IPO) in Janu- ary of 2006 was priced at $22, opened at $45, and closed at $44 per share.12 From 2006 on, Chipotle's share price rose steadily until the economic crash of 2007-2008, which sent the stock plummeting, closing below the IPO price at just under $39 a share in November of 2008. As the U.S. recovered, Chipotle did too. The stock price climbed to $442 per share in April of 2012, and then hit a stock price high of just under $758 in early August of 2015, right around the time of the first E. coli outbreak.13 By mid-2016, following the additional food safety scandals, the stock price tumbled to $426 a share. While the Centers for Disease Control (CDC) had ceased its investigation into the E. coli outbreaks and deemed Chipotle to be safe once again, there was no specific determination about the source of the var- ious outbreaks. As a result, many shareholders and consumers were leery about the restaurant.14 Same- store sales (the metric of customers repeatedly dining at one location) dropped 14.6 percent in the fourth quarter of 2015, and many restaurants were permanently shut downat least 43 stores in the Northwestern region of the United States.15 LAWSUITS Several civil lawsuits have been brought against Chipotle following the outbreak epidemic. Most prominent is a suit accusing employees of the Simi Valley, California store of attempting to hide evidence of the August 2015 Norovirus outbreak. According to witnesses, the kitchen manager was sick and contin- ued to work days after displaying signs of illness. The restaurant closed its doors shortly after symptoms worsened, and employees allegedly posted signs on the doors to the building stating a staffing shortage was the cause. The lawsuit claimed that after closing the store, employees threw out all of the food in stock, bleached every cooking and preparation surface, and once reopened, brought in alternate employees from other locations to cover for the sick (by then more staff had become ill). County health officials were not contacted until two days after the restaurant closed its doors, a period in which at least 234 custo- mers reported some form of gastrointestinal illness.16 Chipotle continues to face multiple negligence suits by/on behalf of affected victims. The majority of these suits aim to obtain compensation to cover medical bills, loss of wages, and other damages. One woman in Boston is suing on behalf of her child who caught Norovirus after eating in the Chipotle restau- rant, causing the mother to have to miss work and forgo other responsibilities. It is likely that the chain will settle many of these suits out of court.17 Managing the "Perfect (PR) Storm" Some experts believe that Chipotle managed the crisis well. Chipotle was noted to be "aggressive and forth- coming" in its approach to closing affected stores for deep cleaning; going so far as to close all their stores on one day to hold a company-wide meeting to dis- cuss the changes.18 In addition, the company revealed it would provide fully paid sick days to ill employees who are now required to stay home an additional five days from the time their symptoms disappear. For- tune magazine referred to this as a "one-two approach" that not only addressed Norovirus con- cerns but also proved Chipotle's loyalty to its employ- ees.19 Many have said that the chain's ability to be upfront and honest with the public through the years has been the key to its success, as well as key to helping them stay afloat during times of crisis. Chi- potle was founded and grown as an "anti-fast food" fast-food restaurant, sacrificing efficiencies and cost savings to prioritize quality and customer satisfaction"people-before-profits"and this mes- sage resonated even during the food safety issues.20 The chain posted information to its Web site regard- ing the outbreaks and released information to media when appropriate. In 2016, Chipotle implemented a new food safety program to assess the safety risks of every ingredient on its menu. This included DNA-based testing of its ingredients before being shipped to Chipotle locations and changes to food prep and handling, including new training for safety standards for workers. The goal continued to be to provide the freshest food pos- sible at a low cost to customers, despite the challenges of using local supply chains. Nevertheless, one article about Chipotle, postcrisis, was titled, "Chipotle Strug- gling to Get Customers Back."21 It cited the need for Chipotle to "tweak" its food safety changes and beef up its advertising. That month, Chipotle issued free burritos to any customer who texted a code to a des- ignated phone number. This marketing campaign proved very successful, with 5.3 million people texting the number, and 67 percent of those people redeeming the coupon.22 In March 2016, Chipotle announced it would double-down on its free-burrito strategy, announcing that it would mail 21 million coupons to households across the United States. By combining damage control tactics, positive press, and driving traffic to its locations, Chipotle attempted to gain back its lost customer loyalty and trust. So, will these tactics be enough to get Chipotle customers hooked again and ultimately In Chapter 6, we identified that Chipotle did not seem to have time to completely develop a plan to manage its crises. Looking back at Chapter 6's "5 Steps in Managing Crises," what might the Chipotle management team have done differently?