Consumer

Shelly Banjo is a Bloomberg Gadfly columnist covering retail and consumer goods. She previously was a reporter at Quartz and the Wall Street Journal.

Rotten Meal
Chipotle shares have dropped 32 percent in the past year
Source: Bloomberg

It's going to get worse before it gets better for Chipotle. 

Beset by an ongoing food-safety crisis, the burrito chain on Wednesday disclosed a painful, 30 percent drop in year-over-year sales at established locations for the month of December, far exceeding the 16 percent year-over-year fall it experienced in the first few days of December

Media coverage of a norovirus incident at a Boston restaurant in early December didn't help matters. Then, following an announcement of an additional government probe into E. coli outbreaks at restaurants around the country, sales trended down by 37 percent, the Wednesday filing said. Chipotle also said it received a grand jury subpoena from a U.S. District Court in California related to a separate norovirus incident in August. 

Shares fell as much as 8 percent during early trading Wednesday, adding to a 32 percent drop in the past year.

In an effort to keep its share price from falling further, the company said it was going to buy back $300 million in stock, the second such repurchase plan in two months. It's also ramping up a marketing campaign to lure customers back, apologizing on national TV and in newspaper ads, and hiring a new social media ad agency to aggressively respond to consumer complaints on Facebook and Twitter with comments assuring people to "come on in, you're safe.

Chipotle bulls should be cautious. The company's efforts to prop up its stock price are likely to fall short in the near term.

So far, Chipotle's food-safety foibles have merely brought its previously overvalued stock down to reality: Chipotle is currently trading around 26 times trailing 12-month earnings, down from a P/E multiple of around 50 last February, according to data compiled by Bloomberg. Its P/E ratio now hovers around the average trailing 12-month P/E of its restaurant peers, according to Bloomberg Intelligence. 

Meanwhile, Chipotle's brand perception continues to sink lower after each new incident. As bits of news drip out, consumer sentiment, sales and the stock price all fall.

How Low Can It Go?
Chipotle's brand perception has crumbled. An index score above zero is positive, below zero is negative.
Source: YouGov BrandIndex
YouGov BrandIndex interviews 4,500 adults each weekday from a representative US population sample

While other chains, such as Yum! Brands' Taco Bell, have eventually recovered from food safety issues, Chipotle's woes are particularly hard for consumers to swallow because the company's whole shtick has been centered around selling healthier, better food and attacking competitors for not following suit. 

Until the U.S. Centers for Disease Control concludes its E. coli investigation and signs off on a clean bill of health for Chipotle -- the timing of which the company has said is unclear -- many diners are not going to feel safe enough to eat at the restaurant chain. And the stock price will continue to fall. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Shelly Banjo in New York at sbanjo@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net