Analysis: E. coli outbreak is latest in very bad year for ChipotleAnalysis: E. coli outbreak is latest in very bad year for Chipotle

It has been a tough year for Chipotle Mexican Grill Inc.

An outbreak of E. coli that may be linked to restaurants in Washington state and Oregon is the latest challenge for the fast-casual chain. It was the third foodborne illness event this year for the brand.

But Chipotle has been facing heat on other fronts as well.

The series of unfortunate events began in January. The company was forced to suspend a supplier for not meeting animal welfare standards, leaving pork missing from the menu at hundreds of restaurants for much of the year. Though pork is back at most units, it’s unclear whether sales will be fully restored.

In August, a lawsuit accused Chipotle of making false claims that its ingredients were free of genetically modified organisms, or GMOs, because some meat may come from animals that fed on GMO products and soft drinks may also contain them.

The E. coli outbreak is expected to further add to Chipotle’s legal burdens. One of the victims reportedly filed suit this week. Depending on how the investigation plays out, more are likely.

Meanwhile, after reporting double-digit increases in traffic in 2014, Chipotle’s sales appeared to be slowing somewhat in the third quarter, though analysts remained optimistic that the more-than-1,900-unit chain’s brand fundamentals are strong.

Add to Chipotle’s challenges an ongoing and hostile attack campaign by the Center for Consumer Freedom, or CCF, a Washington, D.C.-based advocacy group headed by Rick Berman, who has been known for using aggressive tactics in the past in opposing minimum wage hikes, battling unions and supporting fracking.

In this case, the CCF is attempting to poke holes in Chipotle’s Food With Integrity brand positioning, which the advocacy group describes as an empty marketing ploy. The group launched a website called ChubbyChipotle.com, along with an ad campaign.

It’s an attack that likely comes from within the foodservice industry — potentially competitors and food manufacturers and suppliers who are threatened by Chipotle’s "better-than-others" marketing position on food quality. CCF is funded by restaurants, food companies and individual consumers, but the group won’t say which specifically are behind the Chipotle campaign.

Will Coggin, CCF’s director of research, said the group “has a long history of going after activists who are pressuring the industry on food issues.”

The E. coli outbreak this month offered an opportunity for the latest ad, which appeared in the New York Post on Wednesday, saying: “You can’t spell Chipotle without ‘E. coli.’”

Health officials said Tuesday that 41 people were sickened in the latest outbreak, and that number is expected to grow. No deaths have been reported.

Though only eight restaurants have been implicated so far, Chipotle temporarily closed 43 units in Washington and Oregon and is working with health officials in both states to determine the specific cause.

Wall Street analyst Stephen Anderson of Maxim Group said in a report Wednesday that sales at Chipotle will likely remain sluggish through December, even after the investigation is complete.

Anderson credited Chipotle management for its prompt response to the outbreak. “Even after the company sounds the ‘all clear,’ however, we believe that it will take some time for traffic to return, and, based on our recent checks, we sense there may have been a modest deceleration in traffic, even at unaffected locations due to the heightened publicity surrounding this story,” the report said.

On Twitter, consumers were both wary and supportive.

Some consumers, however, saw an upside to the “bad press.”

Update: Nov. 4, 2015  This story has been updated with the latest number of reported cases.

Contact Lisa Jennings at [email protected].
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