Chipotle Mexican Grill Inc. plans to become the best in the world at food safety, company officials said Tuesday.
In a presentation to Wall Street analysts at the annual Bernstein Consumer Summit in New York, officials with the Denver-based chain laid out a plan for improving food safety that they contend will put Chipotle 10 to 20 years ahead of industry norms.
“We have this desire to be the safest place to eat,” said Steve Ells, Chipotle chairman, founder and co-CEO. “We’re serving extraordinary quality ingredients, and that’s been something in place for many, many years now, and we’re best in the world at that. We’re going to be the best in the world at food safety, and we’re taking this very, very seriously.”
While the chain is still dealing with the aftermath of an E. coli outbreak that so far has sickened 52 people in nine states, there will be a point when the Centers for Disease Control and Prevention will call an end to the investigation, although it’s not clear when that will happen, said Mark Crumpacker, Chipotle chief creative and development officer.
“The CDC said in very clear terms that they will label this investigation over, but they gave no indication of a timeline,” Crumpacker said. “I would not expect them to be in a hurry to do that.”
The outbreak has been a severe blow for Chipotle, which is expected to report negative same-store sales for its Dec. 31-ended fourth quarter for the first time since it became a public company in 2006.
Meanwhile, Chipotle is investing heavily in food safety with new protocols that will include more testing of fresh produce.
Just as suppliers are asked to meet certain standards under the chain’s Food With Integrity mission, produce suppliers will be held to higher standards in terms of food safety, Ells said.
“There will be robust testing procedures that will need to be in place for all of our suppliers, whether large or small,” he said. “Some of the smaller suppliers might have a hard time implementing these robust testing procedures initially. We’ll help them. Not all will be on board, for sure, but we think most will.”
But, because “it’s impossible to test every tomato,” the chain is taking additional operational steps, Ells said.
For example, Chipotle has begun dicing tomatoes in a commissary, putting them through a “sanitary kill step” to eliminate pathogens, and hermetically sealing them for delivery to restaurants.
Similar procedures have been put in place for ingredients like cilantro and lettuce, which are higher risk items because they are not cooked. The heat of cooking can kill certain pathogens.
Using a commissary will not degrade quality, Ells said. “You could bring fresh cilantro right out of the field to restaurants and wash it there. I don’t think it will be any better than washing the cilantro in the commissary. It’s a really efficient way to do that, and it’s a sanitary way to do that.”
Other ingredients, like avocado and jalapenos, will continue to come into restaurants whole.
The additional protocols are not expected to slow throughput or result in supply shortages, although throughput rates are expected to decline as a result of slower sales, Moran said.
Jack Hartung, Chipotle chief financial officer, warned that the investment in food safety will be costly. Margins will suffer as a result.
“It will be an investment,” he said. “We’ve got to act with a sense of urgency, and that means we’ll probably do it inefficiently.”
Once the stronger protocols are in place, however, company officials will circle back and look for ways to become more efficient.
Marketing plan at the ready
Still, Hartung said raising menu prices may be necessary, and the chain has pricing power. But those menu increases will not likely be considered until 2017.
“The thing we don’t want to do is say, ‘We’ve made our food safe, now give us more money,’” Hartung said.
Serving smaller portion sizes to offset the hit to margins is also not an option, especially with “hacks” to overstuff Chipotle burritos widely available on social media.
“Even my kids tell me about those hacks, and I say, “That hurts our throughput. Stop it!” Hartung said. “Our customers will not let us make it smaller.”
Crumpacker said the chain stands at the ready to launch a marketing campaign to invite customers back, but that can’t happen until the CDC officially draws a close to the recent outbreak.
The plan includes open letters in newspapers, as well as critically placed interviews and direct marketing. A buy one, get one offer may be included.
Crumpacker said research on the impact of the outbreak indicates that only about 57 percent of Chipotle customers are even aware of the incident, but it may be a challenge to get new customers to return.
The chain has an opportunity, however, in becoming even more transparent, he said.
“If there’s a silver lining at all from a marketing perspective, it would be being as transparent or more transparent than any company has ever been,” Crumpacker said. “We are creating some communications in that vein, and that will be shared to loyal customers via social media. That’s where we have the most direct relationships with those customers.”
Monty Moran, Chipotle co-CEO, expressed frustration that “sensational media headlines” appear whenever the CDC updates the number of reported illnesses, which trickle in from the various state health agencies.
So far, all cases have been limited to the period between Oct. 19 to Nov. 13, according to the CDC. It can take up to three weeks for someone to fall ill, and there may be lag time before local health departments notify the CDC.
As a result, there may still be additional cases reported. But that doesn’t mean customers are still getting sick after eating at Chipotle, Moran said.
Illnesses were reported Monday in Boston, for example, and a Chipotle unit there closed temporarily as health officials investigated.
The incident, however, is not believed to be connected with the E. coli outbreak. A common flu or norovirus is suspected, and Moran said other restaurants brands were also implicated.
“We’ll probably see when somebody sneezes, ‘It’s E. coli from Chipotle,’ for some time,” he said.