Chipotles sales tumbled in December as scrutiny on chain intensified

Chipotle's sales tumbled in December as scrutiny on chain intensified

December saw the scrutiny on Chipotle Mexican Grill intensify as the under-pressure US fast-casual chain battled to restore its reputation after a series of food safety scares. Chipotle's success has been built on its ingredient claims and the initiatives on sourcing continued throughout the industry with a series of announcements. Meanwhile, two US fast-food giants, Yum! Brands and Burger King, outlined its ambitions in emerging markets.

Chipotle Mexican Grill's woes deepen in December

In November's Foodservice focus, we reported on Chipotle Mexican Grill's decision to close 43 outlets after a multi-state e. coli outbreak linked to its restaurants.

However, the scrutiny and criticism of the business only grew in December.

Just before Christmas, US federal officials reported the e. coli outbreak had sickened 53 people in nine states. However, in an update on 22 December, the US Food and Drug Administration said investigators were looking into a second e.coli outbreak, which had made five people ill in three states.

The FDA said the "epidemiologic evidence available at this time suggests that a common meal item or ingredient served at Chipotle Mexican Grill restaurants in several states is a likely source of both outbreaks".

The announcement followed news at the start of the month linking norovirus symptoms suffered by over 100 students in Boston to a Chipotle outlet in the city.

In the wake of the Boston scare, Chipotle, which had touted itself as a chain that sold "food with integrity", sought to rebuild its reputation with newspaper ads in which co-CEO Steve Ells apologised for the incidents and pledged to improve the way the operator handled food.

To these three incidents, two others can be added. In July, five patrons in Seattle fell ill from food poisoning with e. coli after eating a Chipotle outlet. In August, Chipotle customers at restaurants in Minnesota fell ill from salmonella.

In a filing with the US Securities and Exchange Commission this week, Chipotle admitted two other episodes. The operator revealed it had "experienced an incident involving norovirus" in December at a restaurant in Massachusetts.

Strikingly, Chipotle also said it had been served with a federal grand jury subpoena over "an isolated norovirus incident" in California.

Chipotle is seeing a significant impact on its business. "For the full month of December, comparable restaurant sales were -30%. Future sales trends may be significantly influenced by further developments," the company said.

Furthermore, On 13 October, Chipotle's stock was worth over US$750. At 14:47 ET today, its shares stood at $415.19.

The investigations into the issues at Chipotle are ongoing so it is unwise at this juncture to jump to conclusions. However, taking a step back and looking at what impact Chipotle's woes could have on the supply chain, industry watchers are already asking whether the affair will cause operators to think again about local sourcing, which has become more important to more consumers in the US in recent years.

"I do think it will cause some pullback from this "locally sourced" phenomenon, at least in the short term, as restaurants prioritize health and safety over a local sourcing advantage," David Henkes, advisory group senior principal at US foodservice analysts Technomic, tells just-food.

Lizzie Friend, senior global foodservice analyst at Euromonitor, adds: "These kinds of scares have a pretty strong immediate effect, but customers come back pretty quickly. This cycle feels a bit different for a few reasons, first because it's so widespread and because there have been multiple events one after another. I do still think they will recover from this, but it could be a slower recovery than we tend to see in these cases. It undoubtedly will become a significant hurdle for the company if they can't keep any other similar issues from happening in the near future."

Blaze Fast Fire'd Pizza "raises bar" on ingredients

US chains continue to make announcements on their ingredients lists, hoping to tap into rising consumer interest in what goes into the food they order.

In December, fast-casual pizza chain Blaze Fast Fire'd Pizza said it was "going clean". After recently removing nitrites from its pepperoni, salame, ham and bacon, Blaze Pizza said its "journey to clean is nearly complete". 

In the first part of this year, the company plans to "upgrade a short list of remaining items" – olives, garlic, salad dressings and blood orange lemonade – in a move to ensure the ingredients for its pizzas and salads are additive-free.

The group insisted its growth is allowing it to improve its sourcing. "Fast-food companies – as they've grown in size – have historically shifted to more processed, lower-cost ingredients," Jim Mizes, president and COO of Blaze Pizza. "At Blaze, it's the exact opposite. Each restaurant we open increases our leverage in sourcing less processed, higher quality ingredients. It's how we've been able to nix the nitrates and remove artificial additives."

"Consumers want higher quality, and they want real, fresh wholesome food, all of which are of course pretty nebulous concepts. There are a lot of things operators can do to try to add this idea to their positioning, and ruling out unclean ingredients is a big step in that direction," Friend says. At this point consumers just want to feel good about their purchases and the foods they're eating, so broad, sweeping statements like this are very comforting.

Blaze Pizza, in which US basketball star LeBron James is an investor after ending a partnership with McDonald's, has 104 outlets in 26 states, with 87 more sites under development.

December also saw more announcements on cage-free eggs, with Dunkin' Donuts and three JAB Holding chains - Caribou Coffee Co., Einstein Bros. Bagels and Peet's Coffee - all makes pledges.

"Higher quality ingredients is something consumers have been demanding for a while, and we're now at the point where these are the kinds of improvements brands need to make just to keep up," Euromonitor's Friend says.

Yum! Brands optimism over China

In October, Yum! Brands announced plans to split in two through the spin off of its Chinese business. Yum! China will become a franchisee of Yum! Brands in mainland China, with exclusive rights to KFC, Pizza Hut and Taco Bell, although the latter chain is not yet present in the country.

The QSR operator has seen its sales come under pressure in China but believes it can prosper as a stand-alone business.

Last month, at an investor day in December, Micky Pant, the CEO of the new Yum! operations in China, said Pizza Hut had suffered during a slowdown in casual dining as Chinese consumers drew back amid the slump in the country's stock market.

However, Pant conceded Pizza Hut had not done enough to communicate its value. He also said the chain would face increased competition.

Nevertheless, he said China presented an "unrivalled growth opportunity" for the group. He said Yum! would "focus on speed and simplicity" in a bid to drive sales. Pizza Hut would focus on its "core products" and innovation, improve service levels, try to "build more relevance across all dayparts", work on developing different formats and "lead in a digital world"

KFC, he said, expects to have seen sales fall in 2015 but was seeing sales recover after food safety issues hit the chain. The division's initiatives would echo those at Pizza Hut. KFC's plans include refocusing on its "core menu", "more strongly highlight value", improve the "customer experience"  and run different formats.

In an interview with The Wall Street Journal, Pant said Yum! expects to start testing Taco Bell in China within the next 12 months.

Burger King adds another market to roster

The burger giant, which says it is pursuing an "aggressive international growth strategy" opened its first outlet in the west African country of Cote D'Ivoire in December.

The restaurant has been set up in the country's capital, Abidjan, in partnership with airline catering and logistics business Servair.

Burger King's move follows last month's announcement from France's Groupe Le Duff, which said it plans to open 30 of its Brioche Dorée restaurants in Africa, including in seven new markets - Cote d'Ivoire, Cameroon, Congo, Gabon, Ghana, Nigeria and the Democratic Republic of Congo.

Doing business in Africa, of course, presents significant challenges, not least around logistics and the supply chain. But the continent is seeing rising incomes and a willingness to eat out more. The region could present a developing opportunity for operators away from the larger emerging markets in Asia.