To say Chipotle Mexican Grill’s (NYSE: CMG) norovirus epidemic has scared investors away is an understatement. Chipotle stock has plummeted from an August 2015 peak of $750 to just over $400. That’s quite the drop in less than a year’s time.
Yet Chipotle is far from doomed. The popular restaurant chain will eventually rebound as the company develops a new culture of food safety and continues its domestic and global expansion.
How Chipotle can Transform its Food Safety Culture
It is believed that Chipotle’s year-long string of foodborne illnesses was caused by either tainted produce or unhygienic employees. The issue of poor employee hygiene is fixable. The problem of tainted produce is a bit more challenging.
In terms of decreasing the odds of employees transferring a virus, fecal matter, bacteria and germs onto food, Chipotle faces the same risk as every other food service provider.
The company has made strides toward the adoption of a new food safety culture. Employees have been thoroughly educated about the importance of sanitary and mindful food handling practices.
Chipotle restaurant managers now encourage sick employees to stay home. Even those who experience preliminary signs of a looming illness are told to call in sick. It is clear that the company is no longer taking any chances when it comes to food cleanliness.
In terms of food supply chain management, Chipotle executives have decided to blanch, wash and dice produce in central hubs before shipping them out to individual restaurants. The hope is that this centralization of food preparation will drastically decrease the odds of tainted food being served to customers.
Furthermore, Chipotle executives are internally considering a number of other food chain management tweaks. As time progresses, Chipotle could consolidate its produce suppliers to a handful of elite growers with flawless food safety track records.
Chipotle executives are also working on improving the “traceability” of ingredients by adding batch and/or lot numbers to each case that is shipped from suppliers to Chipotle food preparation hubs and beyond.
The purpose of this tactic is assign an identifying string of numbers to groups of food supplier ingredients so they can be tracked back to the original source in the event that a foodborne illness rears its ugly head once again.
This improved traceability will also prove quite valuable in the event of a recall. In the end, Chipotle executives will figure out how to improve the company’s culture of food safety just like every other successful chain restaurant. It is prudent to view the company’s unfortunate episodes of foodborne illness as mere temporary setbacks.
The Sequoia Fund’s Recent Investment in Chipotle is a Positive Sign
The Sequoia fund recently announced an investment in Chipotle. Sequoia’s stake in Chipotle was made official after the fund’s head honchos held in-depth discussions with food safety experts, industry veterans and fund managers concerning the company’s efforts to implement new food safety practices.
The fund performed its due diligence, established an expected timeline for Chipotle’s resurgence and had no qualms pulling the trigger on a sizable investment. It is an excellent indication that Chipotle is on the track to a recovery that will eventually lead to a doubling of its domestic store base.
High-Quality Mexican Food Millennials Crave
Millennials currently outnumber baby boomers as the largest age cohort in the United States. Millennials are absolutely infatuated with Chipotle tacos and burritos. Young adults make up the largest share of the Mexican fast casual chain’s traffic.
To the surprise of many food industry analysts, these youngsters haven’t given up on Chipotle after the company’s embarrassing norovirus epidemic. In fact, the exact opposite occurred. According to The NPD Group, teens and young adults actually increased their visits to Chipotle by double digits last year.
The importance of Chipotle’s appeal to millennials cannot be overstated. Millennials have quickly become the most coveted age cohort for a variety of reasons. The first is their sheer size. Millennials outnumber every other age cohort in the United States. They are entering the workforce in droves, rapidly earning a larger piece of the economic pie as time progresses.
It is clear that millennials are willing to forgive Chipotle for its past food safety missteps. Though some millennials are simply unaware of the extent of Chipotle’s foodborne illnesses, it can also be said that these youngsters are fiercely loyal to their favorite brands.
This fact is a big reason why Chipotle stock will eventually bounce back. Give Chipotle enough time to rectify its food safety woes and millennials will help spearhead the company’s return to fast casual dining dominance.
Regards,
Ethan Warrick
Editor
Wealth Authority
