!1 Michelle Keswani Janelle Applequist PUR 3000 Feb 5 2017 Public Relations Case Study e. coli Breakout at Chipotle Mexican Grill Summary Chipotle Mexican Grill Inc. an American chain of fast food, was founded in 1993 in Denver, Colorado. With over 2000 locations, Chipotle has grown to specialize in tacos and burri- tos, as well as maintaining the reputation of being affordable and quick. The company’s mission statement “Food with Integrity” highlights their naturally-grown ingredients, including naturally- raised meat. Chipotle Mexican Grill had an e. Coli breakout in December 2015. Over 100 people were infected in 11 states. Eighty Boston College students were included and were all sick from one particular location. Chipotle Mexican Grill Inc. then closed down over 40 restaurants in re- sponse to the outbreak, and applied additional safety tests to all the restaurants and employees. Chipotle had to address winning their customers back by offering coupons in the mail, such as buy-one, get-one meals, as well as texting all customers interactive games to win free food or buy-one get-one coupons. Chipotle has a wide demographic, being a fast, casual, and affordable !2 restaurant for any almost any class or age group, and was able to partly win people back with promotions temporarily. (Nathan 2016) Research Chipotle carried out a lot of primary research to insure that their food was handled properly and passed all the FDA regulations. Some food safety procedures include: high-resolu- tion DNA-based testing, new food handling and preparation processes, enhanced food safety training program for the crew, and third-part audit of its food safety procedures. For the marketing and promotional campaigns they had to research ways to win back the customers. They ended up with radio, print, and digital marketing campaigns, spending over $55 million in the first two quarters. A survey was conducted by Morgan Stanley analyst John Glass, who surveyed more than 2,000 consumers. The report showed that 13% of them said they have no plans to return to Chipotle anytime in the near future. Another Morgan Stanley survey also took place, that helped identify problems Chipotle needed to work on. Customers in the Northeast and West highly par- ticipated and it was discovered that 33% of the survey takers stated that the key reason for not going back was the worry about food safety (Kell, 2016). Glass warned that a full sales recovery could possibly take years for Chipotle. Chipotle has various investors that participated in the fall of their sales during the e. Coli breakout in January 2016 (Kell, 2016). Bill Ackman bought a huge stock in Chipotle which also rose 5.5% in after-hours trading. !3 "We welcome their investment, and appreciate the confidence they've expressed in our brand, differentiated offering, visionary leadership and strong growth opportunities," a Chipotle spokesman said in an email statement to Fortune. When the e. Coli outbreak took place, Chipo- tle’s sales had fell 23.6%. Following that, it ended up dropping 82% once all the promotions took place trying to win the customers back. Packman has had several successful investments, as well as failures such as when he invested with Borders and J.C. Penney. He continued to keep his in- vestment with Chipotle. With other investors, it did not go as smoothly. Susie Ong, an investor, sued Chipotle for “allegedly misleading investors about its food safety controls.” The stock price completely dropped as well and Chipotle declined to comment. Ong was frustrated and believed that “quali- ty controls were inadequate to safeguard consumer and employee health.” Ong sued for “dam- ages sustained”, “reasonable attorneys’ fees, expert fees and other costs.” The attorney who filed this complaint stated “Investors in the company suffered significant losses when these health concerns were raised by regulators” (Galarza, 2016). Objectives After dropping over 20% in sales in the second fiscal quarter, Chipotle, one of the most popular food chains had to regain the loyalty of their customers. They aimed for more informa- tional objectives where they first needed to address the issue. Chipotle’s founder Steve Ells wrote a letter that was published for all consumers to read. The detailed report about the incident exposed Chipotle completely. The restaurant reacted in a sincere, and apologetic manner towards !4 the situation and then reinforced their behavior by explaining how they would do anything to fix the situation. Chipotles’ motto, “Food with Integrity” had to be worked on. The food preparation process was changed and the different ingredients were going to be tested in central locations before being sent out to the restaurants. For example, cheese will arrive to restaurants already shredded in bags. Other fresh ingredients such as onions will be mixed with lime or lemon juice to kill germs. Beef, chicken, and other meats will be delivered cooked in sealed bags, versus be- ing cooked in the restaurants. Barclays analyst Jeffrey Bernstein has noted Chipotle’s recovery may take longer than other chains that have been hurt by food-borne illnesses, because social media has increased people’s awareness of such incidents. Chipotle strives to be a restaurant of character, that serves “Food with Integrity.” However, this makes it even harder to make a come back considering it goes against everything they stand for. Chipotle could not waste time to address exactly what went wrong, but instead trying to and fix the problem. The first step was to identify what exact ingredient made everyone sick. However this was not that easy. Executives stated that they may never be able to actually identity what made people sick. Mansour Samadpour, the CEO of IEH Laboratories was hired by Chipotle to tighten its procedures. He stated, “When you’re given a project like this, you look at the universe of hazards.” How Chipotle handled the situation was appropriate, but did not necessarily bring back a good percentage of customers. !5 Programming Chipotle Mexican Grill had to find a way to save its reputation from this giant scandal. The fast food chain came up with several marketing efforts to come back. The first campaign in- cluded customers texting a number and receiving a coupon for a free burrito. This took place while the various restaurants around the county were closed to work on improving the food regu- lations. From then on, a lot of marketing strategies via social media were spread. Playing games to win buy-one, get-one coupons got a lot of customers back in. The company also started by of- fering free drinks with meals to all students around the country, including those who are home schooled (with valid ID). Social media played a huge role in this comeback. Right after that was released, they announced free kids meals with a purchase of an entree every single Sunday of September. "Recovery is happening," says Arnold. "Since the investigation ended about seven months ago, we have recovered about 40% of the sales we lost from the low point in January (as of our most recent reporting period at the end of the second quarter), and introduced programs to help stimulate frequency and restore trust. These things are also moving in the right direction. But none of this happens overnight”. (Taylor, 2016) The following July, a summer program named Chiptopia was announced. By the end of the month, more than 3.6 million participants were using the program and it had accounted for 30% of all purchases made at Chipotle. This program was aimed at the loyal chipotle customers, where if they buy 12 burritos over the course of 3 months, they would win 4 burritos for free. A lot of research was conducted on this program. Theories include that Chiptopia was designed to better understand the needs and motivation of customers. Robert Passikoff, the founder and pres- !6 ident of loyalty and engagement consultancy Brand Key also mentioned that Cihipotopia was not a loyalty program but instead was designed to get customers just to purchase one more time. To summarize, customers had to spend $24 to get one free entree, $42 to get two entrees for free and so on. When calculating, customers end up spending a lot more trying to get the free entree, ver- sus just buying the three entrees. This strategy was not designed to work long term, for Chipotle had 33% return rate during this period. This was a temporary strategy to bring back customers they had lost during the outbreak, and it sure did work. “Chipotle said two months ago that it was already working on a permanent program to prevent backlash once Chiptopia ends. The new program has not yet been announced by Chipotle, though the company is insistent that it is on the right track to make a comeback.” (Taylor, 2016) Before this scandal, Chipotle uses about eight marketing campaigns a year. However in the past 6 months, they have announced over 10. The use of controlled and uncontrolled media, played a big role in the come up of Chipotle after the incident. Chipotle is a big twitter user, constantly replying to customers and tweeting about new ingredients and/or deals. The textbook, “THINK: Public Relations, explains the multiple-step flow theory. It indicates that people become aware of this issue through a chain of two-step flow processes. At the heart of the model, the “opinion makers” stand. They get all the information and then share it to people who are known as the “attentive public” The third group, the attentive public, are unaware and uninterested. In this case, they would include people who don't normally eat at chipotle or are big fans of the chain-restaurant.