Founded in 1993 by Steve Ells in Denver Colorado, Chipotle Mexican Grill was one of the first fast-casual restaurants. Ells founded Chipotle with the mission statement “food with integrity.” Chipotle differs itself from its competitors with fresh, naturally grown or raised ingredients. Although this competitive advantage was driving the company’s initial success, it also caused some unforeseen problems in their supply chain.
The problem began for Chipotle back in 2008. A link was made between Chipotle and a Norovirus outbreak that left 450 people ill. However, Chipotle was able to quickly recover from this before it caused too much damage to their reputation. After hiring two food safety consulting firms, Chipotle was reopened for business. However, in 2015 there were additional E.Coli and Norovirus outbreaks. At this point, an investigation of Chipotle was announced by authorities.
Forty-three restaurants were closed down in the affected areas. During this ongoing investigation, another Norovirus outbreak occurred in Boston. 120 students at Boston College fell sick. The lawsuits began to pile up for Chipotle,who are currently still dealing with the repercussions of the outbreaks.
What Went Wrong?
Surprisingly, Chipotle’s competitive advantage was also the cause of their problems. Sourcing natural and locally grown ingredients needs a highly complex supply chain. This complexity made it hard for Chipotle to have full supply chain visibility. During the outbreaks, they didn’t know where the virus had come from and where else it would go. Ian Williams, Chief of the CDC, said that their system was not granular enough. Williams believes all companies in the food industry need to improve their traceability between the farm and point of sale.
Chipotle took a risk by diverging from the norm. Especially in an industry where the quality and safety of goods is of the utmost importance. As Kevin O’Marah points out, “[a] reality of food supply chains is that elimination of variability in sourcing and production is essential to achieving low costs while maintaining quality.” Can Chipotle recover from the outbreaks and reestablish themselves as the market leader in the industry?
What Is Chipotle’s Response?
Chipotle is handling this with integrity. They are being very cooperative with authorities. Also, they are openly communicating with customers and shareholders. Chipotle is taking full ownership and is now looking to make amends with customers.
Ells knows that this round of outbreaks is not going to go away this time. He realizes that the company requires a complete shift in operations and food safety. Ells is working with Mansour Samadpour, a food safety expert, to put together an action plan. Samadpour emphasizes that “[being] in compliance with industry standards is less than 5% of what companies need to do to make food safe.”
Some of the changes in their new plan include high-resolution testing, a large use of centralized kitchens, and a more rigorous audit process. Chipotle has published a detailed document of these changes on their website.
Ells understands that these changes will take time. However, he also sees this as an opportunity to set a new standard for food safety. Rather than as a disruption to the company’s success, he is using this to grow into a stronger organization. Ells does hope to one day restore a majority of food preparation into store kitchens. But for now, the safety of his customers is the top priority.
What Can We Learn From This?
The first lesson we can learn is the importance of visibility and traceability in the supply chain. As goods make their way from one end to the other, every step will affect the final product. Full visibility in these stages will help you avoid negative impacts. Maintaining full visibility can help avoid or minimize these situations.
We can also see the benefit of a risk mitigation strategy. Although we may not be able to plan for everything, we can prepare for a variety of outcomes. Unexpected events could affect profits, brand reputation, supply source, or operation flow. So, there should be a plan in place to mitigate the damage. Risk mitigation can help a firm hit the ground running when a crisis occurs.
What about the first outbreak in 2008? They could have used the experience to prevent, or at least plan for, any future outbreaks. Having a plan in place can also help have a leg up on competitors. While they are busy planning to fix the disaster, a proactive firm will be ready to execute their plan.
Finally, Chipotle has taught us how to act with integrity in the face of a crisis. Throughout this scandal, Chipotle has been cooperative and open communicative. Customers appreciate organizations owning up to their actions. In the event of an unexpected disaster, this is crucial to maintaining image. This is a great example of a company hit with a disaster that can still recover. They took full ownership for the situation and are going to make big changes.
It may take a while yet for Chipotle to fully recover and gain the loyalty of customers once again, but they are definitely on the right path.
