It's about time Chipotle turned on the charm.
On Tuesday, a defensive-sounding CFO Jack Hartung -- in Chipotle's first public address since it lowered sales forecasts Friday due to dozens of incidents of food-borne illness linked to its restaurants -- said the company's reputation was being hurt by "sensational headlines" in the media. Executives also blamed what they called the "unusual and unorthodox" reporting methods of the U.S. Centers for Disease Control and Prevention (read: dripping information on new cases one by one, rather than swiftly opening and closing an investigation).
Chipotle executives, speaking at the Bernstein Consumer Summit, said they expected the backlash to continue -- partially because, in their view, the media blames Chipotle and E. Coli every time "someone sneezes." They made no mention on Tuesday of apologizing to customers and said they didn't plan to roll out any type of customer marketing until the CDC officially closed the case. The company said the CDC hasn't given them a timeline for that.
When the case is finally closed, Chipotle plans to send customers discounts via direct mail, take out full-page letters in newspapers and do some "critically-placed interviews to say, 'Hey, this is over, this is what we've done, we invite you back to our stores,'" chairman and co-CEO Steve Ells said, noting a previous apology to the customers initially affected in the Pacific Northwest area.
Ells and his team should consider acting sooner. As I wrote last month, the E. Coli situation has potential to do real damage to the company. Chipotle said Tuesday that just 57 percent of its current customers are aware of the health incident, admitting only that the company has "a little work to do there." But survey results from YouGov BrandIndex show Chipotle's favorability ratings have plunged to all-time lows.
Americans often stay loyal to foods they love even after a major public-health scare. But luring customers back to Chipotle could be a challenge. Even if you assume the company will become the industry leader in food safety, as it has claimed, that may not be enough to convince lost customers to return or to have clarity on when sales will rebound.
More than just a food safety problem, executives need to realize they have a serious public relations problem.
Since October, 52 people from 9 states have reported E. Coli infections, 47 of whom reported eating at Chipotle in the week before their illness started, according to the CDC. No deaths have been reported. The CDC said it hasn't identified what specific foods caused the illnesses and that, even though no new people are likely to be infected, more cases may be reported in the ensuing weeks.
On Monday, Chipotle temporarily closed a restaurant near Boston College after 30 students got sick. The infection didn't stem from E. Coli but from norovirus, which can be found in contaminated food. The company called it an isolated incident.
The hit to sales has not been isolated, however. After Chipotle announced the closure of 43 restaurants on November 3, sales at established restaurants plunged by as much as 20 percent from a year earlier. A week later, they were still down by 9 percent from the year before. The company now expects fourth-quarter sales at established restaurants to fall by a range of 8 percent to 11 percent from a year ago. Consensus analyst estimates had called for a 1-percent increase in fourth-quarter comparable-store sales before Friday's release.
And Chipotle says it can't even begin to predict its 2016 sales, due to "additional uncertainty related to the E. Coli incident." The stock has fallen 27 percent in the past four months -- and that might be worse, if not for a $300 million share buyback plan also announced on Friday.
While it's absolutely necessary for Chipotle to focus on overhauling its supply chain, it's also important to immediately and authentically reassure customers that it's safe to come back. There's no reason to wait.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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