Fresh Ingredients Came Back to Haunt Chipotle
After E. coli outbreak, CEO Steve Ells revamps food-safety practices; source remains a mystery
ENLARGE
Chipotle founder and co-CEO Steve Ells, shown in a Seattle Chipotle in December, is under pressure to show he can revive the chain’s fortunes after illnesses that scared off customers and investors. Photo: Stephen Brashear.Associated Press
For much of the past few months, though, he has been playing defense after E. coli outbreaks sickened dozens, set regulators on the elusive trail of the cause and sent investors fleeing from the once-hot leader in healthy fast food.
Mr. Ells, Chipotle’s co-chief executive, must show he can revamp its kitchens to avoid a repeat and revive its fortunes. Chipotle on Tuesday reported fourth-quarter net income of $67.9 million, or $2.17 a share, down 44% from a year earlier, on a 6.8% drop in sales to $997.5 million. It was the first decline in quarterly revenue since Chipotle went public in 2006.
Mr. Ells told investors Tuesday that Chipotle has prided itself on being a safe place to eat but that “the events of the last few months have shown us we need to do better.”
ENLARGE “Food safety is the most important thing,” Mr. Ells has told employees during the crisis, said a person familiar with his pronouncements who described him as “evangelical” about the subject. Mr. Ells declined interview requests.
E. Coli: What You Need to Know
Most E. coli strains are harmless and considered an important part of a healthy human intestinal tract. But the one behind the Chipotle cases, known as STEC 026, is a different story. Here's what you need to know. Photo/Illustration: Arielle Ray
“Because we will probably never know for sure what caused this,” Chipotle spokesman Chris Arnold said Monday, “we have taken significant measures to improve safety for all of the ingredients we use.”
Mr. Ells’s team sometimes was at odds with the CDC, which helped investigate the outbreak of E. coli tied to Chipotle that sickened 55 people across America, as well as a smaller E. coli outbreak that sickened five more. Chipotle executives publicly complained the CDC was issuing too many updates. The CDC, in turn, bristled at Chipotle’s going public with statements such as Mr. Ells’s mid-January suggestion that the agency could soon declare the outbreaks over.
Chipotle in 2014 began importing grass-fed beef to meet its demand for “responsibly raised” meat. It believed the E. coli spread to other ingredients through improper food handling, said people familiar with Chipotle.
Advertisement
“It’s largely been a collaborative relationship” with Chipotle, Mr. Wise said last month, “but these can be highly emotional situations.”
ENLARGE The crisis has been deeply personal for 50-year-old Mr. Ells, a trained chef who borrowed from his father to start the first Chipotle in 1993. He expanded the chain to more than 2,000 restaurants, with $4.5 billion in 2015 revenue, making it a forerunner in ingredients like free-range meat.
But after years of rapid store growth, and double-digit sales increases at existing restaurants in 2014, Chipotle’s growth began to slow. It faced new competitors emulating its model of serving fresh fare fast, while traditional chains like McDonald’s Corp. and Yum Brands Inc. ’s Taco Bell invaded its turf with moves to eliminate artificial ingredients and switch to antibiotic-free meat.
The illnesses sidetracked growth further. In addition to the E. coli cases that started surfacing in the Pacific Northwest in late October, they include August salmonella cases in Minnesota that sickened 64 and outbreaks of norovirus—the leading cause of U.S. foodborne illness— traced to Chipotles in California in August and Boston in December that together sickened hundreds.
A Focus on Safety
Chipotle founder and co-CEO Steve Ells has thrown himself into revamping Chipotle’s food-safety practices in the aftermath of E. coli outbreaks that sickened more than 60 people across the country. He has been changing company protocols, from chopping certain produce in central kitchens instead of restaurants to not allowing employees to handle raw meat. “Because we will probably never know for sure what caused this,” Chipotle spokesman Chris Arnold said Monday, “we have taken significant measures to improve safety for all of the ingredients we use.”-Julie Jargon and Jesse Newman
The CDC on Dec. 21 announced the smaller E. coli outbreak; it said Monday that outbreak wasn’t genetically related to the bigger one.
Slide in sales
Sales at existing Chipotles fell 14.6% in the fourth quarter, dropping 30% in December, the company said Tuesday. Chipotle’s stock has fallen more than 25% since Oct. 30. The shares were down nearly 6% at $448 in after-hours trading following its earnings release.The Mystery of the Contaminated Burrito
Chipotle (CMG) and health officials investigating its E. coli outbreak disagreed on the likely cause. Government authorities leaned toward produce items but Chipotle’s distribution records pointed to beef, said people familiar with the matter. Chipotle believed E. coli could have transferred to other ingredients through cross-contamination, a scenario the CDC said was unlikely, because it would mean similar food-handling errors had to be repeated in all affected states at the same time.-Julie Jargon and Jesse Newman
About 15 years ago, he ordered pork from Niman Ranch, a free-range-meat pioneer. Loving the taste, he dived into studying new farming techniques, recalled Dan Fogarty, Chipotle’s first marketing director. That led to a review of every ingredient and formed Chipotle’s “food with integrity” philosophy.
Some people familiar with Chipotle said executives didn’t always apply the same intensity to food safety as to ingredients’ taste and origin. “By far the ‘food with integrity’ vision was always No. 1,” said a former Chipotle operations executive. When they discussed suppliers with employees “they’d never talk about food safety. It doesn’t mean it wasn’t checked, but the discussion was always about the story behind the supplier and keeping up with our growth.”
Chipotle’s Mr. Arnold said: “Food safety has always been a priority, though the level of emphasis is certainly greater now than it has been.”
After customers in Seattle and Portland, Ore., began reporting E. coli illnesses, Chipotle shut all 43 restaurants in the region, submitted thousands of ingredient samples to the FDA for testing, and sanitized and restocked restaurants before reopening them. It hired food-safety firm IEH Laboratories & Consulting Group to help identify and fix the problems.
None of the ingredients tested positive for E. coli, Chipotle has said publicly, likely because the contaminated food had been consumed or discarded as new shipments came in.
ENLARGE
After years of double-digit sales increases, Chipotle’s growth began to slow last year. Photo: Stephen Brashear/Associated Press
When the CDC on Nov. 20 reported the outbreak had spread to Minnesota, California, New York and Ohio, Chipotle’s distribution records convinced the company the culprit was red onions, cilantro or beef, said people familiar with its investigation. Onions seemed unlikely to Chipotle, because its supplier shipped much of its harvest to other restaurants, but no illnesses tied to them had been reported.
Two weeks later, the CDC reported cases in Illinois, Maryland and Pennsylvania. Chipotle crossed cilantro off the list, because it used a different cilantro supplier in Illinois. That left beef. As not all sickened customers ate beef, it could have caused the outbreak only if E. coli bacteria passed from the meat to other ingredients through improper food handling.
Food & Water Watch, a nonprofit consumer-advocacy group, has raised concerns about beef from Australia because some meat producers there use their own trained employees, instead of government inspectors, to conduct inspections at slaughterhouses. A 2014 USDA audit report of Australian meat facilities, the latest available publicly, noted that port-of-entry records for the latter part of 2013 and the first part of 2014 indicated that beef products shipped to the U.S. from Australia “continue to be in violations of United States food safety standards,” citing the presence of feces and digestive-tract material on meat.
A spokesman for Australia’s Department of Agriculture and Water Resources said: “Australia has a long history of safe and successful beef exports over many years and is very proud of its food safety record.” He said the problems in the 2014 report have been rectified and cited a yet-unpublished 2015 USDA audit report that found no port-of-entry detections of E. coli contamination in 2014 and 2015. Beef-industry experts said Australian beef is as safe as U.S. beef.
The contamination risk from meat may have been higher for Chipotle than other chains, food-safety experts said, because it brings fresh meat into its kitchens, unlike many big chains. McDonald’s, for example, uses frozen patties that don’t thaw until cooks throw them on the griddle.
CDC Declares End to Outbreak
The Centers for Disease Control and Prevention on Monday declared an end to two E. coli outbreaks that sickened 60 Chipotle (CMG) customers in 14 states last year without identifying the ingredient responsible. But Chipotle believed the E. coli in the larger outbreak likely came from contaminated beef imported and that it spread to other ingredients through improper food handling, said people familiar with the matter. Chipotle is now testing meat for pathogens before it arrives at restaurants and is changing the way it handles and marinates meat.-Julie Jargon and Jesse Newman
Now, employees will add the rub in sealed bags so they don’t directly handle raw meat. Workers now marinate meat after restaurants close to avoid possible contamination with food prepared during the day. Each restaurant shift has designated food-safety leaders to ensure outlets are adhering to protocols. Half of restaurant managers’ bonuses are now tied to food safety.
As Chipotle and health authorities sought answers, they were often out of sync. The CDC’s Mr. Wise said Chipotle’s distribution records posed a challenge. He declined to offer specifics but said “having traceability from field to slaughterhouse to restaurant can help facilitate traceback. Chipotle has articulated plans on their end to make that system more robust.”
Mr. Arnold said Chipotle has provided investigators detailed records, adding “we are not aware of any issues.” It recently began requiring suppliers to label shipments with item numbers that get scanned at distribution centers. Soon, he said, restaurants will have similar scanners to better track incoming items.
ENLARGE
People who know Mr. Ells say he has thrown himself into overhauling Chipotle’s food-safety practices. Photo: Stephen Brashear/Associated Press
Chipotle executives felt that gave the mistaken impression people were still getting sick. On Dec. 8, Chipotle co-CEO Monty Moran told investors that news of the outbreak was “fueled by the sort of unusual and even unorthodox way the CDC has chosen to announce cases.”
Mr. Wise said “the only thing that’s different in this outbreak than others” is that the CDC did daily updates in the early days because it wanted consumers to be informed.
Outbreak is over
On Jan. 5, Chipotle executives met with the CDC, the Food and Drug Administration and the Agriculture Department’s Food Safety and Inspection Service, all involved in the probe, for the first time in person at CDC headquarters to discuss the outbreak, including their beef-cross-contamination hypothesis.The CDC thought that scenario unlikely, because it would mean similar errors were repeated in all affected states simultaneously, said Mr. Wise. “The consensus is there’s still more work to be done before we get to an ingredient we feel caused the outbreak,” he said after the meeting.
Still, Mr. Ells told investors on Jan. 13 he was hopeful the CDC would soon declare the outbreak over. Mr. Wise said the statement surprised him because “that’s usually a statement I would expect the CDC to make.”
Two E. Coli outbreaks that sickened dozens of Chipotle customers appears to be over, the CDC said Monday, but authorities still have not determined the cause of the food poisoning. Photo: Getty Images.
“The investigation is over and was inconclusive in terms of identifying a cause, so that is consistent with how things ended,” Chipotle’s Mr. Arnold said.
The company said it plans to shut all Chipotles for a few hours Feb. 8 to describe to employees all the steps it has taken to make food safer and to explain the reasons behind new procedures.
Mr. Ells has been applying his trademark bravado to statements about food safety, vowing the changes will make Chipotle the “safest restaurant to eat at” and bring outbreak risks to “near zero.” He reiterated the view Tuesday, saying Chipotle is reducing the risk of another foodborne outbreak to “as near zero as possible.”
Some question that promise. Claiming the risk of another outbreak is near zero is “really going out on a limb,” said Michael Doyle, director of University of Georgia’s Center for Food Safety. “It could come back to bite them.”
