Will Chipotle’s Food Safety Initiatives Lead To A Turnaround In Comps?

Chipotle Mexican Grill won’t rest with the freebies and promotional activities until it sees a restoration in its comparable sales and traffic data, or so it seems. After the unfortunate E.coli breakout, Chipotle has been making news for either one of two reasons: heavy investments in marketing and food safety initiatives and its inability to show significant recovery in comps, or issues relating to indictment of its chief creative officer for drugs and wage theft.

In a continued attempt at taking the burrito chain back to previous highs, the company’s management is relentlessly trying to use new and innovative ways to assure its customers of the safety of its food. In the following note, we talk about some of the food safety initiatives the company has undertaken.

• Chipotle recently hired a food safety expert, Dr. Marsden, who has a history of dealing with food safety crises. To ensure the quality of the food, Dr. Marsden has laid down a number of rules, ranging from employees being checked for illnesses every morning to frequently checking the temperature of foods. Further, every “check” has to be compulsorily logged into “the black book,” a daily record of each location’s safety procedures.

• A new position of a food safety leader has been established in each restaurant, to ensure all employees, irrespective of the section they are working in, wash their hands every 30 minutes. A kitchen timer is used for this purpose. This is an effort by the company to prevent problems related to hygiene in the future.

• Chipotle is increasingly using fresh ingredients, instead of frozen or precooked, to make its farm suppliers, food, and restaurants safer. For instance,

   >> Guacamole are now cleansed with lime juices.

   >> Lettuce is now rinsed, drained, and immersed in a solution of vinegar and water. It then is chopped, immersed in an antibacterial solution, and rinsed again.

   >> The chopped tomatoes, onions, and jalapenos, before getting mixed, are laid on top of avocados and drizzled with citrus juices.

   >> Two employees must verify that produce like onions, jalapenos, and avocados have been immersed in hot water for five seconds to kill germs on their peels.

   >> Containers storing the food must get a printed sticker indicating when they were sanitized and when they should be discarded if not used.

   >> Chicken is now marinated in the evening, when restaurants are less busy, to reduce risk of cross contamination.

  >> Steak and other meats are cooked “sous vide,” a process in which meats are vacuum-packed in plastic and immersed in a water bath at low temperature for several hours.

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  >> Chorizo is treated with high pressure to eliminate contamination.

• Chipotle will now use a special antimicrobial disinfectant solution produced by PURE Bioscience in all its restaurants. The disinfectant is expected to be productive in preventing norovirus outbreaks and bacteria contamination.

• To certify the myriad of initiatives it has undertaken to safeguard its food, the company is looking at publishing papers on what it is doing. This, by making the process more transparent, could potentially get people back to its restaurants.

• Another method to showcase its new methods is the launch of short movies. After the “Love Story,” the company has launched a new ad campaign, “Ingredients Reign,” showcasing how each ingredient is treated with immense care before being introduced in its food.

With the third quarter earnings just around the corner, it would be interesting to see if these initiatives make a dent in key statistics like traffic and sales for Chipotle. However, we will see the company’s operating expenses continue to mount, and consequently its margins drop.

Have more questions about Chipotle Mexican Grill (NYSE: CMG)? See the links below:

• Will Chipotle’s Latest Marketing Gimmicks Pay-Off?
• What Impact Can The Continued Fall In Spend Per Visit Have On Chipotle’s Stock Price In The Next Year?
• How Has Negative PR Affected Chipotle’s Operating Efficiency?
• What Can Produce Over 10% Upside To Chipotle’s Stock In The Next Year?
• How Is Chipotle Dealing With The Aftermath Of The E.coli Outbreak?
• Down, But Not Out: Chipotle Returns To Profitability In Q2’16, Despite Weakness In Top Line
• Chipotle Mexican Grill Q2 FY’16 Earnings Preview: Recovery In Top-line Likely To Be Weak
• Chipotle Mexican Grill Struggles in Q1 FY’16 As Last Year’s E.coli Controversy Impacts Comparable Sales
• Chipotle Mexican Grill FY 2015 Earnings Review: E.Coli Scandal Hinders Top-line Growth
• What’s Chipotle Mexican Grill’s Fundamental Value Based On Expected 2016 Results?
• What Is Chipotle Mexican Grill’s Revenue and EBITDA Bridge?
• How Has Chipotle Mexican Grill’s Operating Metrics Changed Over 2011-2015?
• Where Will Chipotle Mexican Grill’s Revenue and EBITDA Growth Come From Over The Next Three Years?
• Chipotle Mexican Grill Q1 FY’16 Earnings Preview: E.coli Scandal Might Still Impact Top-line Growth

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