Chipotle’s sales are declining following an E. coli outbreak tied to its restaurants across nine states.
The company is expecting same-store sales to decline by 8% to 11% for the fourth quarter, and analysts say the slide could continue for at least another year.
To find out exactly how long the impact could last, Credit Suisse analysts looked at five major food safety scares at McDonald’s China, Taco Bell, Jack in the Box, and Yum! Brands, and how they impacted sales at those brands.
In each of those cases, same-store sales remained depressed for four quarters, then turned positive when the “event quarter” — or the time period where the food safety scare was first reported — was lapped, analysts wrote.
This chart shows the same-store sales trends following the food safety scares that were studied:
The analysis suggests that Chipotle’s same-store sales will likely remain negative through the third quarter of 2016, “barring a heroic promotional/marketing effort to win back customers in the coming months,” the analysts write.
Credit Suisse is predicting an overall comp sales decline of 7.4% for 2016.
In most cases the brands made a full recovery in the years following the food safety scares. However, there’s a key issue in Chipotle’s outbreak that didn’t exist for any of the other chains.
“One key concern/difference in the [Chipotle] situation is that the source of the E coli outbreak(s) has yet to be found,” the analysts write. ” This likely makes the recovery process more difficult for [Chipotle]. In all of the five historical cases just mentioned, the cause of the food safety issue was determined relatively quickly.”
The historical cases that the analysts studied included a 1993 E. coli outbreak at Jack in the Box related to undercooked beef, a 2006 E. coli outbreak at Taco Bell related to shredded lettuce, improper use of antibiotics by two chicken suppliers for YUM China in 2012, and unsafe food handling practices at a China supplier that affect Yum China and McDonald’s China in 2014.
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