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Chipotle's food safety crisis, explained

Cyrus McCrimmon/Denver Post/Getty Images

Chipotle's stock took a beating on Friday after the Centers for Disease Control and Prevention reported on another outbreak of E. coli infections linked to the fast-casual restaurant chain. According to the CDC, five people in Kansas, North Dakota, and Oklahoma contracted E. coli infections between November 18 and November 26. All five had previously eaten at Chipotle.

It's the latest in a long string of revelations about food safety problems at Chipotle restaurants. This newly reported outbreak actually occurred a few days before an outbreak that sickened 120 students in Boston. In late October, the company closed 43 restaurants in Oregon and Washington in an effort to get the problem under control, and has also faced outbreaks in Minnesota and California. Thankfully, no deaths have been reported.

The string of food safety problems has battered Chipotle financially. In a regulatory filing last Friday, Chipotle predicted that sales at a typical restaurant would fall by about 10 percent as a result of the outbreak, and that the company would have to spend $6 million to $8 million to address the crisis — not counting possible legal costs if customers sue. The company's stock has fallen by about 30 percent since August.

With $600 million in cash on hand, Chipotle shouldn't have any trouble weathering this storm financially. But the larger question is whether the string of outbreaks — which may or may not be over — will damage the restaurant's reputation for "food with integrity." Chipotle's commitment to using fresh ingredients from local farms makes it more vulnerable to foodborne illnesses. Chipotle is going to have to work hard to improve its food handling procedures to stamp out foodborne illnesses and win back customers' trust.

Hundreds of Chipotle patrons from California to Massachusetts have gotten sick

The string of outbreaks stretches across the country. In early December, the Centers for Disease Control and Prevention created this map showing the location of E. coli outbreaks in recent weeks — this map does not include the most recent revelations of illnesses in Kansas, North Dakota, and Oklahoma.

People infected with the outbreak strain of E. coli O26, by state of residence, as of December 2, 2015.
Centers for Disease Control

The CDC says that 52 people had been infected with E. coli, and that 47 of them reported eating at Chipotle in the preceding week — strong circumstantial evidence linking Chipotle to the outbreak.

And that's not all. In August, dozens of California Chipotle customers and employees were sickened with a different infection called norovirus — one of the most common foodborne pathogens. The same month, at least 45 people in Minnesota became ill with a third pathogen, salmonella, a problem that was eventually traced to tainted tomatoes at area Chipotles.

In early December, we learned that more than 120 people had become ill with norovirus after eating at a Chipotle near Boston College.

Chipotle has struggled to cope with the outbreaks

A sign shows a closed Chipotle location in Boston on December 8.
Scott Eisen/Getty Images

As each outbreak has come up, Chipotle has moved aggressively to contain the problem. As I already noted, Chipotle closed restaurants across Washington state and some parts of Oregon in late October and early November to try to contain the E. coli outbreak there.

In early December, Chipotle announced further steps to beef up its food safety protections. It brought in independent food safety expert Mansour Samadpour to improve its food safety practices and implemented their recommendations. "I am happy to report that our proposed program was adopted in its entirety, without any modification," Samadpour said on December 4. "While it is never possible to completely eliminate all risk, this program eliminates or mitigates risk to a level near zero, and will establish Chipotle as the industry leader in this area."

The improvements included "high-resolution testing of all fresh produce," testing ingredients as they reach the end of their shelf life, continual monitoring of the supply chain to identify suppliers with quality problems, and better employee training.

Then Chipotle faced another big outbreak in Boston. (The just-announced illnesses in Kansas, North Dakota, and Oklahoma all began in November, before this announcement.)

One reason the company may be struggling is its commitment to fresh ingredients. Big restaurant chains that serve canned or frozen foods can centralize their food distribution systems, allowing them to more easily monitor their supply chains and implement stringent procedures to eliminate foodborne illnesses. But Chipotle uses fresh ingredients sourced from a wide variety of local suppliers that may not have the capacity for stringent quality controls. That makes the company more vulnerable to outbreaks, and puts more of the onus for food safety on the managers of the company's 1,700 restaurants.

Chipotle needs to rebuild customer trust

Jack in the Box recovered from a massive 1993 food safety crisis.
Manfred Segerer/ullstein bild via Getty Images

For years, Chipotle has touted the superior quality of its ingredients, emphasizing that its meat is organic, humanely raised, and GMO-free. These are all strong selling points with Chipotle's upscale customers, but of course they won't mean much if the chain develops a reputation for getting its customers sick.

Concern about long-term damage to Chipotle's brand may explain why the company's stock has lost a quarter of its value since the current string of outbreaks began in August.

Chipotle's situation could be worse. In 1993, for example, hundreds of people were sickened — and four children died — as a result of a massive E. coli outbreak caused by undercooked hamburgers at the fast-food restaurant Jack in the Box. Jack in the Box survived the crisis, instituting innovative new food safety procedures and running ads showing it dynamiting the company's corporate headquarters.

Chipotle is going to have the pursue the same two-pronged strategy: First make sure it's identified and fixed the problems that allowed the outbreaks in the first place, and then make sure the public knows that Chipotle has turned over a new leaf when it comes to food safety.