New Food Poisoning Claims at Chipotle: Is the Concern Warranted?
Editors' pick: Originally published July 8.
After a week of gains, shares of Chipotle Mexican Grill (CMG) - Get Report are up slightly Friday, after plunging Thursday.
The reason behind the selling pressure could have disastrous long-term effects on both the stock and on the company itself. Best-selling fantasy and thriller author Eric Van Lustbader, of Jason Bourne fame, took to Twitter Thursday, saying that his editor became sick after eating at Chipotle.
It sounds like a plot point in one of Van Lustbader's books, and some are accusing the author of sabotaging the stock.
"This Chipotle thing is still ongoing. My editor ended up in urgent care after being deathly ill all night from eating at Chipotle's," the original tweet read.
Van Lustbader later elaborated that his editor was sent to the emergency room and kept there for seven hours, suffering from food poisoning from unsanitary food handling practices.
Hours later, another Twitter user reported that he also fell sick after eating at a Chipotle restaurant in New York.
Another food safety scare is the last thing Chipotle needs. Just last week, the company fired up its "Chiptopia" summer rewards program to bring back customers who were frightened away by last year's E.coli outbreak.
Last summer, Chipotle was riding high as the nation's most beloved fast-casual restaurant. The company was creaming rivals such as Panera Bread and Shake Shack, and its stock was at about a whopping $750 s share.
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Then things went downhill.
In October, customers who visited restaurants in 14 different states started coming down with food poisoning from E. coli. This was a public relations disaster, particularly because Chipotle has always prided itself on its fresh and clean ingredients and traditional, wholesome preparation methods.
Investors bailed out in droves, with Chipotle's stock losing more than half its market value since last fall.
The company has made several efforts to bring its once-loyal fan base back into the burrito line. With same-store sales cratering by about 30% in the fiscal first quarter, Chipotle knew it needed to act fast.
Specials such as offers for free burritos and coupons for gratis guacamole started hitting customers' text message inboxes. And the company even sponsored a major music festival in an attempt to persuade millennials that it is the hip place to eat.
Last month, Chipotle created a customer loyalty program designed to reward diners for the sheer volume of entrees eaten.
Reward programs have been increasingly popular among restaurant chains of late, with rivals Dunkin' Brands and Starbucks seeing particular success.
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This Chiptopia program is designed to last for just three months, through September. Chipotle fans who eat at least 11 burritos or other entrees in each of those three months, totaling at least 33 entrees, will earn nine additional free meals as well as a catering service for 20 friends, worth $240.
But without even calling into question their veracity, if a tweet or two can send investor confidence plummeting so much, this is a troubled and toxic investment. Even for those lured back to the restaurant by the promise of free burritos, Chipotle remains a stock to avoid.
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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.