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Chipotle Idea Proposal (CMG)

Chipotle Idea Proposal (CMG)
 

Is Chipotle still suffering from its tainted food problems?

 

Report Available: October 11, 2017

 

Blueshift’s initial research found CMG still trying to recover from the devastating effects of customer illnesses due to tainted food in its restaurants in 2015. Despite improved internal procedures, CMG had a scare in one of its locations as recently as July, with questions about whether the supply chain and fresh food focus is to blame instead of employee actions. The company has had an up and down performance in 2017 as it tries to move forward, and is now generating positive attention as it prepares for the national rollout of its highly-anticipated queso cheese dip this month.

 

Observations

  1. CMG had a rash of tainted food health scares from July 2015 to January 2016, leading the company to close all of its restaurants for a day in February 2016 to hold a national meeting for all its employees on the severity of foodborne illness and the action being taken to avoid such instances in the future. In all, about 500 customers across 13 different states contracted E.coli, norovirus, or salmonella. The company paid dearly as same-store sales in December 2015 fell 30% and have struggled to recover since.
  2. CMG’s calling card is its fresh food, which is also promoted as ethically grown and sourced. But this also puts it at greater risk for food-related issues because of the complexity of its supply chain and decentralized food preparation. The cause of one outbreak in Minnesota was traced to salmonella on its tomatoes so a new supplier was brought in. But soon after, norovirus struck in Boston. Given all CMG has done to address these events, it is uncertain whether CMG’s internal procedures are to blame. Rather it could be CMG’s large scale, fresh produce model, and supply chain intricacies.
  3. CMG experienced another scare in July of this year when a store in Virginia had several reported instances of illness similar to norovirus. The response, similar to previous ones, was to close the store and sanitize it. Record heat this summer in California is affecting produce quantity and price, including avocados, placing some risk on a staple CMG ingredient. To make matters worse, CMG took another hit to its reputation with a report of mice in one of its Dallas stores. Customer enthusiasm for the chain appears to be waning as there are fewer complaints about long lines at CMG stores
  4. CMG’s Q2 EPS beat expectations, though its revenue, which grew 17% year to year, missed by $20 million. Comp sales grew 8%, less than consensus, while restaurant operating margin jumped to nearly 19% compared to 15.5% a year ago. The company said it saw little customer resistance to higher prices, is testing a pickup window, and will be introducing queso cheese dip nationwide in September.

 

Are there any other cases of customers getting sick from eating CMG? What effect has the summer heat in California had on produce growers and suppliers? How much of CMG’s problems are store/employee based compared to supply chain based? What needs to happen to address CMG’s supply chain problems? How realistic is this? How is the rollout of queso in CMG stores? What effect is this having on guacamole sales at GMG? How are high avocado prices affecting GMG? To answer these and other questions, Blueshift will gather data and issue a market research report from independent sources in the following areas: Supply chain, Store personnel, and Industry specialists.

 

Companies: Chipotle Mexican Grill (CMG)

 

Research Begins: September 25, 2017