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Chipotle pays a big price for a bad week

Blog: First norovirus, then rats, remind customers and investors of 2015

This post is part of the On the Margin blog.

Few restaurant chains have had as bad a week as Chipotle Mexican Grill Inc.

Just as Chipotle was hoping to generate buzz with news that it is testing queso and working with the rap producer RZA on a music video site, a pair of incidents reminded consumers of its recent food safety history. 

First, there was a norovirus outbreak at a Chipotle restauarant in Virginia that might have sickened more than 100 people and resulted in the closure of the location for a day. Local health officials confirmed norovirus in at least one person sickened after eating there.

And then, on Thursday, news that rats (or mice?) were falling from the ceiling of a Chipotle unit in Texas sent the company's stock tumbling 4.5 percent.

Chipotle’s stock closed on Thursday at $356 per share. The stock hasn’t been at that level since it hit a 52-week low of $352 in November. But it hasn’t closed that low since 2013. The stock has fallen another $2 a share early on Friday, to $353 per share.

Just this past week, the stock fell 10 percent. Those two incidents alone cost Chipotle $1.1 billion in market cap.

Chipotle’s stock is now down 5.6 percent this year. By comparison, restaurant stocks are up 15 percent this year, according to the NRN Restaurant Index.

Chipotle’s foodborne illness outbreaks of 2015 cost the company billions of dollars in sales and market value, and knocked the Denver-based burrito chain off its perch as the most admired restaurant company on Wall Street.

Rats falling from ceilings tend to generate social media buzz — in a bad way — and can hit any chain hard, just like norovirus can touch just about any chain. 

Chipotle’s sales recovery “will be at a slower pace than we originally thought,” Canaccord Genuity analyst Lynne Collier wrote in a note Friday morning, in which she lowered Chipotle’s price target to $400. “Minor issues, such as the recent norovirus event, will continue to be magnified in the press and social media, providing an on-going risk for investors.” 

Such issues mean more for Chipotle, given the 2015 outbreaks. The incidents have left some critics and some customers wondering if the chain can get it together.

It can, of course. Chipotle has hired some top food safety experts at the company and on an advisory board. This week, some of the officials visited the USDA’s Food Safety and Inspection Service to talk about their efforts, according to Food Safety News. 

Bill Marler, an attorney who litigates food safety incidents and is an expert on the topic, told Business Insider he considers Chipotle “safe.”

But this is the world Chipotle lives in right now. And it’s up to Chipotle to convince consumers that it’s safe to eat its food. 

This week, the activist Bill Ackman of Pershing Square Capital Management started a Twitter account. As of this morning, he’s tweeted only once, about Chipotle, with a picture of him standing in line at a location the day after the norovirus outbreak.

Ackman, of course, has plenty to gain from convincing customers that it’s safe to eat at Chipotle. Pershing is one of the company’s largest shareholders, having made a huge bet on the chain last year. 

His fund lost $100 million on that bet this week. 

Jonathan Maze, Nation’s Restaurant News senior financial editor, does not directly own stock or interest in a restaurant company. 

Contact Jonathan Maze at [email protected]

Follow him on Twitter: @jonathanmaze

TAGS: Stock Data
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