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Chipotle Mexican grill’s new CEO, Brian Niccol, faces his first big test – a food safety outbreak.
The burrito chain briefly closed one of its restaurants in Powell, Ohio, on Monday after several customers fell ill. The restaurant reopened on Tuesday.
While analysts have maintained their confidence in the brand, maintaining outperform ratings and even upgrading stocks, it seems that investors remain nauseated. On Tuesday, the company’s stock fell more than 7 percent.
Chipotle told CNBC on Tuesday morning that the local health Department had received two illness complaints. However, by 4 p.m., the Delaware General health district said it had received 368 requests related to the outbreak and delivered 33 stool sample kits to people who reported they were sick.
Delaware health said it is asking that people who have experienced symptoms turn to infectious disease teams.
Patrick Quaid, founder iwaspoisoned.com said that the outbreak was more extensive on the basis of the reports on its website. The site allows people to report food poisoning incidents, but does not confirm this information.
Quaid told CNBC that Chipotle’s initial response pretended that the incident was a small problem, however, by his count, there were more than 100 reports citing 170 patients – and that number continues to grow.
A check by the local health Department last week found that the restaurant was not keeping its salad and beans at the proper temperature, according to Business Insider. It is unclear if this is the cause of the reported illnesses, which included symptoms such as vomiting, nausea and fever.
Food poisoning expert bill Marler told CNBC that the outbreak “looks like norovirus.”
Chipotle is far from the only restaurant facing food safety concerns. McDonald’s recently recalled salads to about 3,000 of its restaurants in the U.S. due to an outbreak of cyclospore linked back to lettuce contaminated with cyclospore parasites that is transmitted in feces.
The centers for disease control and prevention said it traced at least 163 cases in 10 States back to McDonald’s. the Company said all locations were replenished from another supplier.
Despite this nationwide recall, McDonald’s shares remained mostly unchanged.
However, Chipotle’s history with food sickness problems has made its investors wary.
“Under previous leadership, the brand quickly released’ Buy one, Get One ‘coupons after food safety scares to help protect traffic that did not prove successful,” Andrew Charles, an analyst at Cowan, wrote in a research note on Tuesday. “We would like to see CEO Brian Niccol take a more accountable and responsible approach and grab the bull by the horns to clarify what happened, what was fixed, and what changes in the future to limit the risk of an event like this happening again.”
Charles made no changes to his estimates, but said he would monitor the situation and view the incident as ” Niccol’s first test as CEO.”
In the past, Chipotle has been very tight-lipped in communicating the scale of any issues and how it plans on handling them.
On Monday night, Chipotle spokeswoman Laurie Shalow described the scope of the problem as “a handful of disease reports at one restaurant in Powell, Ohio.”
“We acted quickly and closed this single restaurant out of an abundance of caution and we are working with local health officials to reopen this restaurant as soon as possible,” she added.
But now there is a possibility that this outbreak is bigger than originally thought.
While Baird analyst David Tarantino maintained his outperform rating on Monday, he said consumer sentiment and traffic to other Chipotle restaurants could take a hit if the incident remains in the media spotlight for too long.
“While we are optimistic that media coverage of the Ohio restaurant closure will prove short-lived and ultimately lead to an inconsequential event for the brand, the lack of visibility creates a new risk factor that is worth monitoring very closely (in our opinion), and based on this dynamic, we would be more patient in introducing new money to work at CMG in the short term,” Tarantino wrote in a note to investors Monday.
Were it not for reports of illness, Chipotle’s stock may have been canceled on an update from Jefferies analyst Andy Barish on Tuesday. It updated the name to buy from hold and increased its target price to $ 550 from $ 400.
“We believe CMG is one of the best companies to benefit from the ongoing transition to a digital / off-premise with operations now ready to handle volume increases again
Chipotle’s stock has risen more than 50 percent since January, a result of confidence that Niccol can lead the company through a successful turnaround.
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