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Chipotle CEO 'extremely confident' food-safety crisis is over

The chain's push to invite customers back scheduled for mid February

Chipotle Mexican Grill Inc. executives expressed confidence Wednesday that the food-safety crisis was behind them, saying they were readying a marketing push to invite customers back that will launch in mid February.

Speaking at the annual ICR Conference in Orlando, Fla., to Wall Street analysts, Chipotle founder, chairman and co-CEO Steve Ells reiterated the “extraordinary measures” the company has put in place and will continue to implement to bring the risk of another foodborne illness outbreak to near zero.

“We face these difficult times now and need to reassure our customers that this can’t happen again,” Ells said.

“In order to do this, we have to take extraordinary measures,” he added. “But we are used to taking extraordinary measures. I have confidence we are going to recover from this and that we’ll win our customers back and emerge a much stronger company.”

The Denver-based chain has endured a series of foodborne illness outbreaks over several months. An outbreak of E.coli that began in the Pacific Northwest in October has sickened 53 people in nine states. Norovirus outbreaks in Boston and California sickened hundreds more, and restaurants in Minnesota earlier in 2015 were implicated in an outbreak of salmonella.

In December, Chipotle was subpoenaed by federal investigators in a criminal probe tied to the norovirus outbreak in Simi Valley, Calif.

The series of outbreaks has also resulted in multiple lawsuits filed by victims, as well as charges that the company misled investors about its food-safety practices.

The company said last week that same-store sales for its fourth quarter were expected to decline 14.6 percent.

However, Ells said he is “extremely confident” that a foodborne illness outbreak will not happen again at Chipotle.

A key factor in encouraging customers to return, however, is getting the all-clear from the Centers for Disease Control and Prevention, Ells said. “I’m hopeful that will happen relatively soon.”

Chipotle officials met with the CDC last week, he said. Customers who fell sick in the most recent round of the E. coli outbreak ate at Chipotle restaurant in late November, he noted, saying, “we are well through the window of any potential problems. There haven’t been any new cases.”

Ells said Chipotle restaurants will close for a few hours on the morning of Feb. 8 to allow all approximately 60,000 employees to attend a company-wide meeting via satellite.

At the meeting, Chipotle officials will give details on what happened and how the company will work to make sure it doesn’t happen again, he said. Employees know what’s happening at the restaurant level, but the meeting will offer details on new protocols in terms of suppliers and the central kitchen.

“It’s going to be a great rally,” Ells said. “I’m sure that the event will get covered and it will be a very public type of meeting, so that will be an additional comfort to our customers.”

Mark Crumpacker, Chipotle chief creative and development officer, said the chain will also give details about the crisis directly to consumers, in particular the chain’s most loyal customers.

The broader marketing push, however, will not focus on food safety, but will return to talking about Chipotle’s food.

In a question, one analyst noted a certain “lack of humility” in Chipotle’s response to the crisis.

Crumpacker, however, said, “There’s never been any belief on our part that anybody but us is fully responsible for this,” and that marketing efforts will have a tone of humility.

Most of the food-safety practices have been implemented, Ells said, although the process will be ongoing.

Measures have included increasing standards for suppliers, high-resolution testing of ingredients for various pathogens, prepping certain higher-risk ingredients like tomatoes and romaine lettuce in a central kitchen where kill-step methods can be used, and making sure restaurant-level staff is observing the most up-to-date food-safety practices.

Jack Hartung, Chipotle chief financial officer, warned that the practices will be costly and the business model will be less efficient, although he said the impact to margins would likely be less than 200 basis points.

“This is going to be messy in terms of margins and earnings,” he said. “We’re not going to be that efficient business model everyone has come to know.”

But margins will return, he said. The chain also has pricing power, though menu price increases would not come before 2017.

“But if we do this well, and in this order, we think we will have a very bright future,” he added. “We will get back to doing what makes Chipotle special, with the added layer of food safety.”

Contact Lisa Jennings at [email protected].
Follow her on Twitter: @livetodineout

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