Chipotle Mexican Grill, Inc. (NYSE:CMG) Screws Up Again

Chipotle Mexican Grill, Inc. (NYSE:CMG) stock was once trading above $700 before the E. coli and Norovirus incidents reported in 2015, which triggered a massive sell-off of the stock. Since then the company has embarked on a mission to reclaim its previous glory, which was quite successful until last week when Chipotle customers fell ill after dining at one of its outlets.

Chipotle’s screw up started on Tuesday when news emerged that several customers had fallen ill after dining at a chipotle location in Sterling, Virginia. The news triggered a major sell-off in the stock given that the illness was later confirmed to be a Norovirus outbreak.

The Norovirus outbreak was followed by reports on Thursday that rodents had been seen at another Chipotle location in the West End neighborhood of Dallas, which also contributed to the stock’s massive sell-off.

The burrito chain has been struggling to repair its image, which was significantly damaged by the E. coli scare of 2015, but this second screw up might be too much for the company. An isolated mistake can be easily forgiven, but repeating the same mistake twice is a recipe for disaster.

Since the 2015 disaster, the company has restructured its operations by hiring new directors who have significant experience in the restaurant industry. The company also ditched its co-CEO structure after which Steve Ells, the founder, took over as Chairman of the board and CEO.

Chipotle’s operation model is unique given that it prides itself on using all-natural fresh products, which is what makes the restaurant highly susceptible to disease outbreaks. The company also has an extremely complicated supply chain that the current management is working to simplify, which is also a major vulnerability for the restaurant chain.

Although the company’s operation model might never attain the simplicity witnessed in other restaurant chains such as McDonald’s Corporation (NYSE:MCD), it could be much simpler than its current model.

Chipotle’s willingness to expand by adding new offerings to its menu and opening new locations in overseas countries has worked to its advantage. However, the risk of disease outbreaks is a risk that investors must contend with given the unique experience that the Chipotle strives to deliver to its customers.

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