Chipotle Mexican Grill (CMG) shares dipped 2.9% on Thursday, extending a decline that began earlier in the week. The stock has lost roughly 10% since Tuesday, when the fast-casual chain disclosed it had stopped serving jalapenos at some locations due to a salmonella investigation.
On Thursday, Chipotle stated that the U.S. Centers for Disease Control and Prevention (CDC) and the Food and Drug Administration (FDA) "do not believe there is a continued risk at Chipotle restaurants related to this outbreak." Wall Street analysts, however, have suggested that the sales impact from the incident may be limited.
"History has repeatedly shown that the impact of foodborne illness on restaurant sales tends to be temporary," one analyst noted. While the food safety concerns may initially deter some customers, analysts say Chipotle might need to launch promotions to win them back. Yet they point to the company's swift response and the typically short-lived nature of such events as reasons for optimism.
"The key is that we believe this should remain isolated," wrote William Blair analyst Sharon Zackfia in a research note. "In any case, history has repeatedly proven that the impact of foodborne illness on restaurant sales is often short-lived." She projected that, provided the issue is contained, Chipotle's third-quarter same-store sales could range from flat to a 1% decline, assuming a sales dip in August and a rebound in September.
Chipotle confirmed on Wednesday that the problematic jalapenos were sourced from a producer in Sinaloa, Mexico, distributed by Coast Citrus Distributors, and have been removed from all affected restaurants. The chain noted that the CDC and FDA "do not believe there is a continued risk at Chipotle restaurants in this outbreak." The CDC earlier reported that a multi-state salmonella outbreak linked to jalapenos was under investigation, with 177 of 191 surveyed individuals reporting illness after eating at Chipotle, Qdoba, or other "Mexican-style restaurants" between June 14 and July 14.
This salmonella investigation coincides with the largest cyclospora outbreak in U.S. history, linked to shredded iceberg lettuce. That outbreak has sickened thousands in recent weeks, with many cases in Michigan and two deaths reported. Chipotle executives previously noted traffic trends slowed in the latter half of last month due to the cyclospora issue, though the company still raised its full-year sales forecast, maintaining that its ingredients were not linked to that outbreak.
Zackfia noted that Chipotle operates roughly 100 stores in Minnesota, accounting for about 2% of its U.S. total. She emphasized that the current salmonella outbreak does not appear to pinpoint Chipotle as the source. "Similar to the recent cyclospora outbreak, the salmonella outbreak appears to be tied to a supplier rather than a specific restaurant brand, so we don't believe this indicates any lapse in Chipotle's restaurant-level food safety practices," she wrote.
The CDC noted on Wednesday that Qdoba has also stopped serving jalapenos. As of August 4, 345 salmonella cases across 27 states had been reported, with 36 hospitalizations and no deaths. BTIG analyst Peter Saleh, in a Wednesday research note, stated that the impact on Chipotle would hinge on media coverage. "As with past food safety incidents, we see a high probability of traffic slowing in the coming days, potentially forcing management to step up promotions to entice consumers back (more discounts, lower margins)," he wrote.
After health officials linked iceberg lettuce from Yum (YUM) brand Taco Bell to a multistate cyclospora outbreak, the chain won back some consumers with a $1 deal for items without lettuce. UBS analyst Dennis Geiger compared this week's Chipotle food safety incident to the 2024 E. coli outbreak linked to supply products from McDonald's (MCD), which saw only a temporary sales impact. "That said, the impact of the salmonella outbreak could be amplified by the multiple industry food safety incidents currently being covered by national media," he added.