Rewind time to 2015, and few investors were bullish on Chipotle (NYSE: CMG). In fact, many investors sold all of their Chipotle shares following the popular restaurant chain’s norovirus outbreak.
My, how things have changed. Chipotle is back, and poised to be better than ever.
Chipotle’s Return to Glory
Chipotle’s stock price peaked in August, 2015 at $749. It fell below the $400 mark in June, 2016 after a series of norovirus outbreaks at its restaurants in various parts of the United States. The burrito chain’s regulars were scared to step foot in their once-favorite restaurant.
Investors had little interest in scooping up the company’s shares, even at a discounted price.
Fast forward to today, and the stock is approaching the $500 mark. The company recently released its first quarter operating and financial results. Take a close look at the numbers and you will find significant improvements in each financial and operating metric compared to last year’s first quarter as well as on a sequential basis.
Chipotle customers have returned after more than a year of declining same-restaurant sales. One has to wonder what has changed in this short amount of time.
A New Culture of Food Safety
The manner in which Chipotle executives have approached their food safety issues will be studied by business and culinary students for years to come. These higher-ups have designed and implemented a new culture of food safety to ensure every burrito, taco and salad is perfectly clean and delicious.
These new food handling procedures were created following the company’s string of nasty foodborne illnesses across the United States. It is assumed that such illnesses resulted from compromised produce and/or unhygienic employees.
Chipotle’s new safety culture has educated staff about the importance of sanitary food handling practices. Managers have pushed for increased mindfulness in all things related to food handling. They also altered their stance on absences due to sickness.
Managers now encourage ill employees to remain at home rather than show up to work. Every single worker has been comprehensively educated about proper food handling practices. Chipotle employees are required to thoroughly wash their hands with anti-bacterial soap and hot water before handling food. Restaurant managers have also educated staff about other critically important components of proper personal hygiene.
Food Supply Chain Management Alterations
Chipotle executives altered their food supply chain management after the year-long outbreak of customer illnesses following visits to the popular burrito chain.
After all, no one is sure as to what caused the instances of norovirus and other forms of illness. Some blame unhygienic employees. Others point to allegedly tainted produce.
Chipotle adopted a proactive food supply management stance by no longer tasking workers at individual restaurants to blanch and dice produce. The dicing and blanching of these ingredients now occurs at central hubs. These ingredients are then shipped to each Chipotle restaurant and served in the following days.
The change appears to have worked to perfection as it has been over a year since a Chipotle customer fell ill or an employee tested positive for norovirus. It is clear that a renewed emphasis on employee hygiene and the centralization of food preparation is responsible for the elimination of foodborne illness.
Chipotle Leaders Keep an Open Mind
Chipotle executives seem to be open to any and all suggestions for food safety improvement. There have been reports that Chipotle leaders have discussed additional food chain management alterations.
The company might soon consolidate its produce production to a smaller group of growers with impeccable cleanliness records. Furthermore, Chipotle’s executive team is working on boosting the “traceability” of its ingredients by assigning lot and batch identifiers so each case sent from suppliers to restaurants can be tracked every step of the way. This way, compromised ingredients will be traced directly back to the grower in a timely and accurate manner.
The Millennial X-Factor
Chipotle has earned the allegiance of the all-important millennial age cohort. Step foot in a one of their restaurants, and you will likely find at least half of the customers to be between 18 and 30.
Their continued allegiance to millennials will serve as the foundation of Chipotle’s remarkable bounce back. These youngsters outnumber their baby boomer parents, making their purchasing power more coveted than any other age cohort in the country.
To the surprise of many, millennials did not abandon Chipotle’s ship after the norovirus outbreak. The NPD Group reports that teenagers and young adults ate at Chipotle more frequently after the chain’s series of foodborne illnesses. Millennials’ purchasing power will only continue to grow as they enter the workforce in massive numbers and consume an ever-growing portion of the economic pie.
These burrito lovers will continue to fuel Chipotle’s bounce back to its seat atop the top of the fast casual food pyramid.
Regards,
Ethan Warrick
Editor
Wealth Authority
