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Chipotle's Tarnished Image Puts Every Sneeze Under Scrutiny

Published on .

Credit: Bloomberg News

The reports were familiar: In the space of 48 hours, a handful of people said they'd gotten sick after eating at a Chipotle Mexican Grill.

Bang: Wall Street's judgment was swift -- and brutal. Chipotle's stock plunged nearly 8% on Tuesday, erasing its gain for the year. The episode, which involved a single location in Sterling, Virginia, recalled the string of foodborne illnesses that upended the chain two years ago, and underscored the fact that the company remains on probation with both customers and investors.

"Chipotle is under the microscope," said Stephen Anderson, an analyst at Maxim Group. "Since this is Chipotle and it's had its troubles in the past, it's going to be under pressure."

The burrito chain closed the location on the outskirts of Washington Monday after a "small number" of illnesses were reported, according to Jim Marsden, Chipotle's executive director of food safety. The company is working with health authorities to determine the cause of the outbreak, he said. The restaurant was slated to reopen on Tuesday.

"The reported symptoms are consistent with norovirus," Marsden said in an emailed statement. "Norovirus does not come from our food supply, and it is safe to eat at Chipotle."

The move follows a series of foodborne-illness outbreaks in 2015 that sent Chipotle's sales and stock price plunging. An E. coli scare drew much of the attention, but norovirus also sickened more than 140 students at a location near Boston College in December of that year.

Though norovirus cases aren't rare -- about 20 million Americans are sickened each year -- the feeling of deja vu on Tuesday was enough to throw the stock into another rout.

The stock fell as low as $362.40, marking the biggest intraday drop since December. It had been up 3.9 percent this year through Monday's close.

Even before news of the latest outbreak, Chipotle's comeback bid has faced obstacles. This spring, a malware attack struck its point-of-sale technology. The Denver-based company said in May that it had successfully removed the malicious code from its systems.

As it was trying to restore its image in 2016, Chipotle hired Marsden to oversee its food-safety efforts. The former professor in Kansas State University's Animal Science and Industry Department has worked to revamp procedures at the Mexican-food chain.

Norovirus is typically spread from one person to another, according to the Centers for Disease Control and Prevention. But it can also be transmitted by eating contaminated food or water.

"We take every report of illness seriously," Marsden said on Tuesday. "In accordance with our established protocols, our team is working to ensure the safety of our customers and employees, including voluntarily closing the restaurant yesterday to conduct a complete sanitation."

That latest incident could spur investors to call for a chief operating officer -- someone who could better monitor the company's more than 2,000 restaurants -- according to Mike Halen, an analyst at Bloomberg Intelligence. Chief Executive Officer Steve Ells previously had help from co-CEO Monty Moran, but he stepped down last year.

"This is not a small chain anymore," Halen said. It could be "too much for one person to handle."

Chipotle is adding new menu items, such as melted cheese and dessert, part of its bid to win back customers. But mastering operations should take precedence, Anderson said.

"For now, the focus has to be execution at the restaurant level," he said.

-- Bloomberg News

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