CONTENTS
3 Abstract 4 About Chipotle 4 Financial Growth 4 Agencies of Record 5 Crisis Overview 5 What is E. coli? 5 Chipotle’s Communicaton Strategy v 6 Timeline 7 Stakeholder Network 8 Stakeholder Reactons 8 CEO & Corporate Employees 8 CDC 8 Store Employees 9 Farmers & Suppliers 9 Loyal Customers 9 E. coli Victms 10 Press Response 10 Public Response 11 Impact of the E. coli Crisis 11 Financial 11 Reputatonal 12 Conclusion 13 Appendices 15 References
2 ABSTRACT
In an increasingly health-conscious society, the fast-food industry has faced frequent critcism regarding both freshness of ingredients and quality of food producton methods. People ofen complain that healthy food choices are not afordable food choices. An apparent excepton to this trend has been the fast-casual Mexican restaurant chain, Chipotle, Inc. Promotng Food with Integrity, Chipotle has long been vocal in their eforts to serve natural ingredients, prepared in-store. Indeed, when a restaurant does focus on integrity and quality to such an extent, consumers naturally expect a certain level of food safety. Therefore, the E. coli virus outbreaks, which afected Chipotle customers between October and December 2015, had a signifcant infuence on their public image. This report will discuss these incidences, the reactons of the company and its stakeholders, and analyze the impact on Chipotle’s business.
3 ABOUT CHIPOTLE
Chipotle Mexican Grill, Inc. is an American fast-casual restaurant chain that specializes in Mexican cuisine. Founded by Steve Ells in 1993, Chipotle was originally based in Colorado and had just 16 restaurants. Today the brand has restaurants in the United States, United Kingdom, Canada, Germany, and France. Chipotle operates out of approximately 2,000 locatons and employs a staf of more than 45,000. Chipotle is known for claiming that Food with Integrity is paramount in the preparaton and sale of their food. Its business model highlights the company’s eforts to only use naturally-grown ingredients, serve naturally raised meat, and prepare most of its food in-store. It has asserted frequently that it is the only chain restaurant to successfully implement this mantra. Chipotle’s main compettors include Qdoba Mexican Grill, Moe’s Southwest Grill, Rubio’s Coastal Grill, and Pancheros Mexican Grill.
financial growth
In 1993, following an $85,000 loan from his father, Steve Ells launched Chipotle, Inc. Due to the success of his frst restaurant, Ells opened a second branch in 1995. The following year, to expand further, Ells then took out a loan from the U.S. Small Business Administraton. Ells’ father contributed an additonal $1.5 million, and Ells raised $1.8 million by forming a board of directors.
Between 1998 and 2001, McDonald’s invested $360 million. This signifcant fnancial backing helped the company to rapidly expand, and by 2001 McDonald’s had become Chipotle’s largest investor. In 2006, Chipotle became a publically traded company, and McDonald’s fully divested itself.
agencies of record
Since 2014, Austn-based advertsing company GSD&M has been Chipotle’s principal media agency of record. One recent campaign of note, Ingredients Reign, plays on the American interest in royalty by presentng their ingredients as the royal family of the Chipotle brand. As of December 2015, Chipotle also hired Carrot Creatve as their frst social media agency of record. This associaton was brokered to move past the food safety concerns and reputaton crisis following the well-publicized outbreaks of E. coli that were linked to Chipotle in 2015.
Carrot Creatve stated their role as not merely reactve, but rather proactve, to overhaul brand standing. The agency is responsible for all social media content and analytcs, as well as paid media on platorms including Facebook, Twiter, Snapchat, and Instagram (Stein, 2015).
In January 2016, Chipotle ended its long-standing afliaton with public relatons frm Edelman. This was a somewhat surprising decision, as this break came afer several years of mutual proftability. “We agreed in early October to part ways with Edelman at the end of the year,” said Chris Arnold, Chipotle’s Communicatons Director. Arnold credited this move to “a sizable piece of business that [Edelman] were taking on that presents a confict” for Chipotle’s business. Later in March, Chipotle hired PR agency Burson-Marsteller, a leader in public relatons crisis management (Bradley, 2015). Burson-Marsteller has covered both consumer and corporate PR such as media relatons, public afairs and executve positoning for Chipotle since then.
4 crisis overview
Between October and December 2015, Chipotle Mexican Grill sufered two outbreaks of the highly infectous E. coli O26 virus. The United States’ Food and Drug Administraton (FDA) and Centers for Disease Control and Preventon (CDC), worked in conjuncton with state ofcials to investgate both incidences.
In January 2016, the CDC noted a total of 55 reported infectons across 11 states: California, Delaware, Illinois, Kentucky, Maryland, Minnesota, New York, Ohio, Oregon, Pennsylvania, and Washington. Most the 21 hospitalized victms were in Oregon and Washington during October 2015.
In February 2016, the CDC ofcially closed investgatons, announcing that they were unable to fnd any conclusive evidence that would point to a specifc cause. Regardless, these incidents led many to queston the Chipotle company moto: Food with Integrity.
what is e.coli ?
E. coli is a bacterium that grows in the digestve systems of humans and other animals. The bacterium is most commonly found in undercooked meat, unpasteurized milk and fruit juice, and vegetables grown in cow manure or washed in contaminated water. Many people fall ill two to eight days afer consuming the germ. Commonly noted symptoms include diarrhea and abdominal cramps.
Most people recover within a week, yet some reported cases have lasted longer and resulted in serious illnesses including kidney failure. E. coli infectons are typically diagnosed through the testng of stool samples. People of any age can become infected, although young children and the elderly are more susceptble to developing severe illnesses because of E. coli.
communication strategy
Following the announcement of an outbreak of E. coli, traceable to Chipotle restaurants, CEO Steve Ells issued a public leter of apology on December 16, 2015. In the leter, Ells said, “The fact that anyone has become ill eatng at Chipotle is completely unacceptable to me and I am deeply sorry.” He contnued, acknowledging that Chipotle had let its customers down when it came to food safety. He then promised to improve Chipotle’s food safety programs, and launched an eight-part initatve that would update restaurant operatons and food preparaton 6 methods. The leter and the food safety changes were published in myriad media outlets, on the Chipotle company website, and on social media platorms (Lorenzet, 2015).
Steve Ells also chose to appear on NBC’s The Today Show. In a candid interview, Ells again apologized for the outbreak. He then asserted that Chipotle was doing everything possible to ensure both safe and healthy food for its customers again: “We’re thinking about the safety and quality of our ingredients to put in place practces that will not enable this to happen again, practces that are so far above industry norms today that we will be the safest place to eat” (Stump, 2015).
5 timeline
Sept. 11, 2015 Chipotle restaurants in Minnesota sufer a salmonella outbreak. 45 cases eventually traced to tomatoes. Oct. 31, 2015 Chipotle temporarily closes 43 restaurants. Nov. 10, 2015 Chipotle reopens those restaurants in the Pacifc Northwest, which were closed following an inital Nov. 20, 2015 E. coli outbreak. All units were sanitzed and food Chipotle releases informaton regarding E. coli entrely replaced. occurrences in New York, California, and Ohio.
Dec. 4, 2015 Chipotle outlines new food safety measures, as Dec. 8, 2015 E. coli-related illnesses spread to Illinois, Maryland, Chipotle publishes outlines for a new plan to make the and Pennsylvania. chain a leader in food safety. Dec. 10, 2015 Steve Ells appears on The Today Show to apologize for Dec. 16, 2015 the E. coli outbreaks. PR experts and public opinion Chipotle CEO, Steve Ells, issues an apology leter in condemn Chipotle’s crisis management thus far. major news publicatons and the company’s owned media. Dec. 21, 2015 The CDC opens a new investgaton into E. coli incidences in Oklahoma, Kansas and North Dakota. Dec. 23, 2015 Chipotle introduces new food preparaton and cooking procedures to prevent future foodborne Jan. 8, 2016 illness. Chipotle is sued over allegedly misleading shareholders with food safety statements. Jan. 13, 2016 Chipotle CEO Steve Ells claims to be “extremely Feb. 1, 2016 confdent” that the E. coli crisis is now over. CDC closes investgatons into the Chipotle E. coli crisis. Feb. 8, 2016 Chipotle closes stores naton-wide for compulsory June 30, 2016 employee food safety training. Chipotle simultaneously Chipotle Marketng Executve Mark Crumpacker is launches its Raincheck Burrito Campaign, giving away indicted in a notable cocaine seizure in New York City. free burritos whilst stores remain closed for training. Chipotle puts Crumpacker on administratve leave. July 1 Chiptopia, Chipotle’s frst loyalty program, is July 5, 2016 launched. Chipotle launches a new advertsing campaign, A Love Story, to re-create positve associatons with Sept. 4, 2016 the brand and remind consumers of their fresh With stocks low, Chipotle launches advertsing ingredients and Food with Integrity mission. campaign Ingredients Reign, to emphasize the trustworthiness of their ingredients and their preparaton. 6 stakeholder network
7 stakeholder reactions
ceo & corporate employees
Chipotle CEO and founder, Steve Ells, released an open leter addressing the outbreaks. Ells promised eight signifcant advances in company food safety procedure. Further informaton was provided an additonal link. This included a video explaining the developments. Chipotle also took steps to ensure that all food would henceforth be prepared as fresh and safely as possible. Measures to achieve this included: • Preparing food in central kitchens, rather than on-site. • Testng every ingredient for pathogens, washing the letuce and blanching the vegetables before and afer they were cut. Also, Chipotle would introduce a high-pressure cooking treatng for their new item, chorizo, to ensure the safekeeping of food items. • Managers must always oversee restaurants, only afer receiving both training and certfcaton in food handling. • Chipotle shut down all its stores for 4 hours on February 8, 2016 to conduct a natonwide training for its employees. • Chipotle hired three food safety experts to ensure protocol was sufcient in all Chipotle chains: David Acheson, a former employee at the US Food and Drug Administraton and the US Department of Agriculture; David Theno, an expert that is responsible for resolving a huge E. coli outbreak at Jack in the Box in 1993; and James Marsden, a former meat science professor at Kansas State University. Marsden was later hired as the Executve Director of Food Safety.
cdc
The CDC opened two separate investgatons into Chipotle, following both outbreaks of E. coli. They conducted reports per their guidelines, yet Chipotle complained that the informaton that the CDC (2016) posted online was “inaccurate, confusing and unnecessarily intensifed the public’s concern.” The CDC (2016) stood their ground and responded that, “The CDC believes that the Web postngs served to protect and inform the public as well as inform public health and regulatory partners as the federal, state and local level about this ongoing outbreak investgaton.”
store employees
The primary concern for most of Chipotle’s employees during the crisis was job security. Understandably, if sales decreased to the point that Chipotle went out of business, many people could have lost their jobs. Summarizing the opinions of his colleagues, one employee noted that many “have really freaked out about it because our hours all got cut so a lot of them aren’t too happy about that.”
8 farmers & suppliers
Chipotle also cut some small farms and suppliers, for example Kenter Canyon Farms, an oregano provider. Chipotle opted, for the most part, to switch to third-party product distributors. “When that whole scandal happened with the E. coli, when they revamped their food safety, they cut tes with a lot of growers,” said Mark Lopez, sales director for the farm (Baertlein, Polansek, & Steenhuysen, 2016).
loyal customers
There can be litle doubt that the outbreaks of E. coli had signifcant impacts on Chipotle’s customer base. However, many loyal customers were undeterred by the threat of E. coli poisoning. Indeed, numerous social media posts indicate the incident was considered to either be something of a joke, or an issue that could be ignored (many simply did not know what E. coli even was). However, some customers even claimed that the compettor restaurants planted the E. coli bacterium in Chipotle branches to sabotage them.
e. coli victims
In a rather amusing turn of events, one victm asked for Chipotle burritos during her court setlement. It is safe to assume that she was undeterred by these incidences. On the other hand, a victm named Chris Collins decided to speak out about his experience. Collins felt that press coverage had been insufcient, and that social media had had led to greater uncertainty, concluding that people did not fully appreciate the severity of E. coli. He sought to promote an understanding of easily things could go wrong in a restaurant and result in customers getng sick. Today, Collins is not willing to eat out, and he and his wife are seriously considering becoming vegetarians: “For me, it doesn’t seem to make sense to take that risk again.”
9 press response
The Chipotle crisis trended on numerous social media networks, and received extensive coverage in media outlets such as Forbes, CNN, Business Insider and Time. Most press reports focused on the severity of the outbreak and the number of people that were afected by the E. coli. The words “outbreak” and “safety” were prominent in nearly every story and post (see Figure 4). Reports included the diferent places that the food poisonings occurred and the number of people they afected. The company’s co-chief executve ofcer, Steve Ells, and the director of communicatons, Chris Arnold, were both quoted in much of the press coverage.
Coverage also focused on the consequences that Chipotle faced aferwards, including its stock falling, its reputaton being ruined, and the backlash from the lack of an adequate response from Chipotle management. Indeed, many artcles in the press commented on how Chipotle did not handle the situaton well. Most complained that the chain did not communicate with the public quickly enough or explain what the issue was. Another main topic in press coverage was when Chipotle sufered their frst ever quarterly loss in April 2016. Despite their best eforts to regain customers, the press has reported that Chipotle has stll not recovered from its loss.
public response
Consumers were upset and fearful, not to menton disappointed in a brand that prided itself on producing Food with Integrity. To many, Chipotle had seemed the last restaurant chain sufer such signifcant food safety concerns. Yet all was not lost. Rebecca Brooks, founder of a market research frm in Los Angeles, notes, “Chipotle has proven tme and again they are willing to sac- rifce proft in support of their mission for healthy, sustainable food” (Williams, 2015). Indeed, many customers were undeterred by the outbreak and contnued to be loyal Chipotle custom- ers: “I can’t live my life worried about some minute possibility something might kill me,” said Stan Yao, a Harvard Law School student.
Research shows that most online communicaton occurred during periods of increased media trafc, regarding new E. coli outbreaks or when the one of the involved partes released a state- ment (see Figure 2). In additon, it was found that most online discussion was on Twiter and predominantly involved consumers voicing their own concerns or retweetng news publicatons covering the story (see Figure 3).
10 crisis impact
financial
Since the inital E. coli incident, Chipotle has seen their stock market value plummet by roughly 40% (see Figure 1). In the fnal quarter of 2015, profts decreased by 44% compared to 2014. Making just $68 million in those months was the worst proft-margin for Chipotle since 2012.
Foot trafc in-store has also sufered, with 70% fewer customers visitng Chipotle following the crisis. During this period of fnancial instability, Chipotle was forced to invest even more on marketng and promotons. The company spent over $70 million in free burrito giveaways during February and March 2016, which amounted to approximately 16% of the company’s total revenue. Coupons were also sent en masse through direct mail and mobile ofers. In June 2016, Chipotle also launched its frst loyalty rewards program, Chiptopia Summer Rewards. The program rewarded customers for frequent purchases at the restaurant with free meals and menu items.
reputational
It can be argued that Chipotle’s fnancial struggles stem directly from the signifcant damage to their reputaton, because of this crisis. Many consumers have vocally renounced the brand, claiming they will never visit Chipotle again. Others have arguably subconsciously made the decision to distance themselves from the brand. Throughout 2016, Chipotle has launched a series of advertsing campaigns, to repair their reputaton and reclaim the positve attudes that once were felt towards the brand.
11 conclusion
The outbreaks of E. coli that afected Chipotle stores in 2015 had severe consequences, pushing both the company and its leadership to breaking point. Financial struggles and a damaged reputaton leave litle doubt that Chipotle will contnue to be afected by these events for a long tme yet. However, improvement can be seen month afer month. A combinaton of efcient, transparent and extensive eforts in communicaton, marketng and public relatons, Chipotle’s recovery campaign has paved the way for a return to the pedestal of fast-casual dining.
12 appendix
Figure 2: Volume of social media posts monitored over the duraton of the Chipotle crisis.
13 Figure 4: Keywords most ofen used in online conversaton about the Chipotle crisis.
14 references
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