By any measure, Chipotle Mexican Grill was a success story in the restaurant business. It grew from one location in 1993 to over 2,000 locations by 2016 and essentially created the fast casual dining category.

However, after more than 20 years without a major reported food safety incident, Chipotle was revealed as the source of multiple outbreaks of illness from norovirus, salmonella, and E. coli that sickened nearly 600 people in 13 states in 2015.  The company closed stores, spent several months under investigation by the U.S. Center for Disease Control and Prevention and other health organizations, and faced a criminal investigation in connection with the incidents.

After a much-publicized closing of all of its stores on February 8, 2016, and numerous changes to its food sourcing and preparation practices, Chipotle tried to win back customers with dramatically increased advertising and free food promotions.

On April 26, the chain announced its first-ever quarterly loss as a public company.  Same-store sales for the first quarter were 29.7% lower than in the previous year.  Operating margins fell from 27.5% to 6.8% over the same period, and the company’s share price was down 41% from its summer 2015 high.

After your analysis of the case, prepare a response to the following questions:

1) Chipotle’s model of local sourcing and delivering “food with integrity” challenged the traditional quick-service model of centralized preparation common at McDonald’s and others.  How can Chipotle now balance the need to control critical operations through centralized preparation with the desire to differentiate itself in the competitive fast casual restaurant market?  Can Chipotle continue to compete effectively using its past positioning as “fresh and local”?

2) Some argue that Chipotle, like many growing firms, focused on growth over attention to store-level operations, which increased operational risk, as many processes were not standardized.  Which standardized processes, both in operations and sourcing, are important to the Chipotle model and need to be addressed to reduce risk?

3) Chipotle’s operations led to a reputational crisis that caused customers to become wary of eating its food.  Other companies in similar situations have made great efforts to communicate how the product was different and safer.  In Chipotle’s case, its burrito looked no different after all of its food safety changes.  How could the product and process be altered to communicate the new focus on safety?  Could this change be demonstrated?

4) Chipotle gave away millions of free meals to attract customers.  Was it enough to rebuild trust?  What other things would you recommend the company do to rebuild trust with customers?

5) Chipotle has inspired many copycats.  Given how sensitive restaurants are to notoriously fickle consumer tastes, how likely is it that the challenges facing Chipotle would drive consumers away from its menu to copycats offering other food types?

6) In the Internet age, details about what Chipotle did and the narrative it created to explain its actions will be available forever.  What did the company do well and what could it have done better?

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