On the Margin
Investors pounce on Buffalo Wild Wings outbreak news

Investors pounce on Buffalo Wild Wings outbreak news

This post is part of the On the Margin blog.

Welcome to a post-Chipotle restaurant-investing world.

On Tuesday, health officials in Johnson County, Kansas, reported that they were investigating reports that at least 10 people suffered a gastrointestinal illness after visiting a Buffalo Wild Wings location in Overland Park, Kan.

There were no confirmed cases of norovirus associated with Buffalo Wild Wings. The people were sickened a week ago and the exact source of the illness is unknown.

That didn’t keep investors from pouncing on the stock once word of the outbreak spread Wednesday morning. The Minneapolis-based chicken wing chain’s stock fell 6 percent on the news as of 1 p.m. Eastern Time.

Blame the Chipotle outbreak. A series of outbreaks hit the Denver-based burrito chain last year, and the stock plunged by a third as a result. That has made investors remarkably skittish.

They sure weren’t before the Chipotle thing. Restaurants, as the most frequent location of mass gatherings of food consumption, are the most common location for foodborne illness outbreaks. And norovirus outbreaks are the most common illness.

Investors largely ignored such outbreaks before Chipotle’s food safety problems emerged.

When Chipotle’s initial norovirus outbreak in Los Angeles first broke nationally in late August, the chain’s stock barely moved.

In September, Minnesota health officials announced an investigation of a salmonella outbreak at Chipotle restaurants and the stock actually increased that day and the next day. The company’s stock didn’t show any meaningful decline until the chain noted in October that its sales were slowing. That decline became a freefall starting after Halloween, when the chain closed 43 locations amid an E. coli investigation.

To be sure, news of a norovirus outbreak, even a small, contained one in a Midwestern state, could hurt sales given the rapid spread of news these days thanks to social media and the Internet — and sensitivity about such things after the Chipotle outbreaks.

“We believe consumers, and especially investors, are hyper-sensitive to reports of foodborne illness,” BTIG analyst Peter Saleh wrote in a note this morning. “Having seen the magnitude of Chipotle’s outbreaks and the resulting financial impact, we believe this can result in investors shooting first and asking questions later.”

But, he said, the outbreak is likely contained and the ultimate sales impact will be minimal.

Contact Jonathan Maze at [email protected]
Follow him on Twitter at @jonathanmaze

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