Based on the case study Chipotle Mexican Grill: Quality At Stake. Please answer the following questions accurately and thoroughly. What were the main shortcomings of the processes? Chipotle Mexican Grill: Quality at Stake "Perception is reality, and people perceive fresh food to be safe food. But that's not necessarily the case. Fresh means no chemicals, no preservatives, and that the food isn't processed. And with that comes a certain amount of risk. Chipotle receives products from a mass number of suppliers. If you're receiving food from only a few suppliers, it's much easier to manage. If you're receiving food from over 100 suppliers, it's much more difficult to manage, " - Francine Shaw (Shaw), President of Food Safety Training Solution s, in May 2016 "If there is a silver lining in not knowing for sure what the cause is, it is that it has prompted us to do a comprehensive reassessment of all of the ingredients we use with an eye to establishing best practices for the handling of each ingredient we use. The result of this reassessment is an enhanced food safety plan that should allow us to eliminate or mitigate risks in this area to a level near zero." - Chris Arnold, Communications Director, Chipotle Mexican Grill, in December 2015 In July 2017, Chipotle Mexican Grill (Chipotle), a Mexican chain of fast food restaurants based in Denver, Colorado, provisionally closed a restaurant in Virginia, the US, after more than 130 customers complained of falling ill and experiencing symptoms consistent with norovirus. The company reassured its customers that it was maintaining proper food safety procedures. "Norovirus does not come from our food supply, and it is safe to eat at Chipotle," said Jim Marsden, Executive Director of food safety at Chipotle. Nevertheless, the shares of the company declined by 4% as soon as news of the closure of the facility came out. To add to its woes, on July 18,2017 , three mice were filmed running around a Dallas Chipotle restaurant. Though the company stressed that it was "an extremely isolated and rare incident", this development, brought Chipotle once again back in the news for its food safety, an issue that had been plaguing the company since 2015. At the beginning of 2015, hundreds of customers of the fast food chain across 14 states fell sick after a series of outbreaks ranging from E. Coli to norovirus to salmonella. As a result, sales were affected and in January 2016 , they were down by as much as 36%. In an effort to win back its customers, Chipotle had not only strengthened its food safety practices, but also spent heavily on promotions and discounts. It also took various initiatives including testing new menu items like the queso cheese dip and a Mexican dessert called buuclos. While the company was in the process of regaining consumer trust, the closure of its facility in Virginia seriously affected its brand image. Though Chipotle soon reopened the facility in Virginia and no other restaurants in the c.

1. Based on the case study Chipotle Mexican Grill: Quality At
Stake.
Please answer the following questions accurately and thoroughly.
What were the main shortcomings of the processes? Chipotle Mexican Grill: Quality at Stake
"Perception is reality, and people perceive fresh food to be safe food. But that's not necessarily
the case. Fresh means no chemicals, no preservatives, and that the food isn't processed. And with
that comes a certain amount of risk. Chipotle receives products from a mass number of suppliers.
If you're receiving food from only a few suppliers, it's much easier to manage. If you're receiving
food from over 100 suppliers, it's much more difficult to manage, " - Francine Shaw (Shaw),
President of Food Safety Training
Solution
s, in May 2016 "If there is a silver lining in not knowing for sure what the cause is, it is that it
has prompted us to do a comprehensive reassessment of all of the ingredients we use with an eye
to establishing best practices for the handling of each ingredient we use. The result of this
reassessment is an enhanced food safety plan that should allow us to eliminate or mitigate risks
in this area to a level near zero." - Chris Arnold, Communications Director, Chipotle Mexican
Grill, in December 2015 In July 2017, Chipotle Mexican Grill (Chipotle), a Mexican chain of
fast food restaurants based in Denver, Colorado, provisionally closed a restaurant in Virginia, the
US, after more than 130 customers complained of falling ill and experiencing symptoms
consistent with norovirus. The company reassured its customers that it was maintaining proper
food safety procedures. "Norovirus does not come from our food supply, and it is safe to eat at
Chipotle," said Jim Marsden, Executive Director of food safety at Chipotle. Nevertheless, the
shares of the company declined by 4% as soon as news of the closure of the facility came out. To
add to its woes, on July 18,2017 , three mice were filmed running around a Dallas Chipotle
restaurant. Though the company stressed that it was "an extremely isolated and rare incident",
this development, brought Chipotle once again back in the news for its food safety, an issue that
had been plaguing the company since 2015. At the beginning of 2015, hundreds of customers of
the fast food chain across 14 states fell sick after a series of outbreaks ranging from E. Coli to
norovirus to salmonella. As a result, sales were affected and in January 2016 , they were down
by as much as 36%. In an effort to win back its customers, Chipotle had not only strengthened its
food safety practices, but also spent heavily on promotions and discounts. It also took various
initiatives including testing new menu items like the queso cheese dip and a Mexican dessert
called buuclos. While the company was in the process of regaining consumer trust, the closure of
its facility in Virginia seriously affected its brand image. Though Chipotle soon reopened the
facility in Virginia and no other restaurants in the chain were impacted, analyst felt that its

2. problems were far from over. "We believe consumer response to Tuesday's norovirus headlines
could be amplified with Chipotle still building back food safety credibility with many
consumers, "4 said Jeff Farmer, analyst at Wells Fargo. a Wells Fargo & Company is an
American international banking and financial services company.
GROWTH OVER THE YEARS The history of Chipotle could be traced back to 1993, when
Steve Ells (Ells), a graduate from the Culinary Institute of America, in Hyde Park, New York,
opened the first store near the University of Denver campus, with a loan of US$85,000 from his
father. Ells's dream was actually to launch a fine-dining restaurant and he opened Chipotle to
make the money to fund this restaurant. The name Chipotle was derived from the Mexican
Spanish name for a smoked, dried jalapeo chili pepper. Within one month, the store was selling
more than 1,000 foil wrapped burritos per day. With its fast and quality food service, Chipotle
started getting noticed by consumers. "So many people fold me it was not a good idea to a start a
restaurant, especially a fast-food restaurant. There was so much wrong with it: it was too spicy;
everything was done by hand, from scratch. Everything was wrong. But that's why customers
liked it; it's different, in the right way. If you have an idea, just go for it. If everybody is telling
you that it's wrong, maybe that's an indication that it's an original idea, ". said Ells. Since opening
its first restaurant in Denver in 1993, Chipotle had redefined the meaning of limited-service
dining. In any Chipotle restaurant one could find as many as 16 employees working in the line
and kitchen. Customers turned up in huge numbers, sometimes hundreds per hour. They could
choose from among four meal items - burritos, burrito bowls, tacos, and salads as well as sides,
made from just 64 ingredients. The emphasis was always on fresh ingredients and preparation. In
an effort to ensure that all of its fresh ingredients were as safe as possible, Chipotle had to work
closely with its suppliers. Moreover, the company also ensured that these ingredients were
handled properly at the restaurants and prepared in the safest way possible. "When I created
Chipotle in 1993. I had a very simple idea: Offer a simple menu of great food prepared fresh
each day, using many of the same cooking techniques as gourmet restaurants. Then serve the
food quickly, ,6 said Ells. In 1995, Chipotle opened its second store using the cash flow of the
first restaurant. The next year, the third store was opened using a Small Business Administration
(SBA) loan. Ells's father also invested an additional USS1.5 million. In the same year, Ells
created a board of directors and raised an additional USS1.8 million. In 1998. McDonald's Corp
(McDonald's) invested USS50 million in Chipotle. By 2001 , McDonald's had become the largest
investor in Chipotle. Over seven years, McDonald's invested over US 360 million which helped
the company to expand from 16 restaurants in 1998 to over 500 by 2005 . In October 2006,
McDonald's fully divested itself of Chipotle, making more than USS1 billion in the process. In
2007, Chipotle went public and its stock increased by 100% on the first day itself. Despite its

3. continuous emphasis on fresh ingredients, the company had been able to maintain profit margins
of around 35.9% (Refer to Exhibit I for Chipotle's Profit Margin Vs Other Major Chains and to
Exhibit II for Chipotle's Share Price). In 2011, Chipotle's total annual revenue touched US$2.2
billion, same-store sales increased by 11.2%, and the restaurant operating margin was 25.9%.
"Chipotle has proven it has a better business model. Grow, invest, grow, invest. It's like a Warren
Buffett tunch. They re in for the long haul of profits, not the quick version, ". said Clark Wolf, a
restaurant consultant. In the competitive fast food industry, Chipotle differentiated itself by not
adopting traditional promotional tactics like McDonald's McRib, Happy Meals, PlayPlaces, and
dollar menus or KFC's d chicken-encased Double Down sandwich. Instead, it released animated
films to promote The Small Business Administration (SBA) is a US government agency that
provides support to entrepreneurs and small businesses. - McDonald's is a leading American fast
food restaurant chain. AFC is an American fast food restaurant chain that specializes in fried
chicken.
Chipotle's food ethics. The company also engaged renowned novelists like Toni Morrison and
Jonathan Safran Foer to write short original pieces which were then featured on its food
packaging. Besides, Chipotle launched a "food, music, and ideas" festival called Cultivate. These
out-of-the-box ideas to create its brand image enabled Chipotle to thrive without incurring high
costs on advertising. In 2015, the company spent USS 69 million on marketing (1.5% of its
sales) compared to McDonald's USS718 million (2.8% of its revenue)." "We are changing the
way people think about and eat fast food. That means pushing ourselves to find the best quality
ingredients - ingredients that have traditionally been available only in high-end restaurants and
specialty food markets - and making them available in a way that is accessible to really
mainstream customers, , said Ells. By 2016. Chipotle was operating more than 2,000 restaurants,
including 17 Chipotle restaurants outside the US and 11 ShopHouse Southeast Asian Kitchen
restaurants". Chipotle was an investor in an entity that owned and operated three Pizzeria Locale
restaurants. (Refer to Exhibit III for Chipotle's Selected Financial Data) THE TROUBLE
BEGINS In 2015, a series of foodborne illnesses caused by repeated outbreaks of E. coli,
salmonella, and norovirus were reported from 11 Chipotle restaurants in Washington and
Oregon. In September 2015, more than 60 customers fell ill after eating at Chipotle's Simi Valley
Towne Center location at Ventura County. While investigators were not able to determine the
exact reason, it was believed that an outbreak of norovirus was responsible. "We may never
know what caused it in the end. We're focused on making sure there are no other illnesses going
forward said Mike Byrne of the Ventura County Environmental Health Division. In September
2015. Chipotle was also held responsible in Minnesota state for an outbreak of salmonella. In all,
45 customers had fallen ill with five of them having to be hospitalized. On October 30, 2015,

4. Chipotle was notified about the E. coli case by health authorities. Soon, several other cases of
people showing symptoms of E. coli poisoning after cating at cight Chipotle restaurants in
Washington and Oregon were reported. Considering the fact that the company served 1.5 million
customers per day across the country, the outbreak could be disastrous. "It all caught us off
guard. Nothing like this had happened. The magnitude.. 13 said Ells. Realizing this, the company
voluntarily closed 43 restaurants in Washington and Oregon in early November 2015.
Meanwhile, in December 2015, a norovirus outbreak which infected 143 people, hit a Chipotle
restaurant in Brighton, Massachusetts, near Boston College. Chipotle's original food safety
practices were adopted from McDonald's and had been improved on over time. In an effort to
regain consumer confidence, the company appointed food-safety scientist Mansour Samadpour
(Samadpour). Under the guidance of Samadpour, the company conducted thousands of tests on
Chipotle"s food along with several unannounced restaurant visits across the country. It laid great
emphasis on its Daily Food Safery Cheollist, which the restaurant managers had to fill up. There
were some new criteria including hourly hand-washing in 100degree water for 20 seconds and
crew audits to monitor whether employees were showing symptoms of any illness, including
vomiting or diarthea. The gencral managers needed to fill up food temperature logs every hour to
ensure chicken and beans were properly cooked to an internal temperature of 165 degrees. Area
managers also had to conduct their own food-safety audits every week instead of every 45 days.
However, the company claimed that it did not find any trace of E. coli 026 within its restaurants
or its food. It even blamed the Centers for Disease Control and Prevention (CDC) for
mishandling the case. While Chipotle focused its investigation on items including onions,
cilantro, and the beef it ShopHouse Southeast Asian Kitchen is an American restaurant chain
specializing in Southeast Asian cuisine. It is operated by and used a similar serving format.
imported from Australia, it could not identify the source of contamination. "It would be
irresponsible for me to say what thing might have caused it because we can't say definitively.
Having a very scientific analysis of this is different from having an opinion of what it might be,"
i4 commented Ells. In January 2016, federal officials said the outbreak had affected 11 states and
approximately 500 people had fallen ill after eating at various Chipotle restaurants 15 (Refer to
Exhibit IV for a Timeline of Chipotle's Five Outbreaks in 2015). In February 2016, the company
organized a high-profile national employee meeting to emphasize its new safety practices. It
temporarily closed more than 2,000 locations to conduct employee food-safety training. 16 On
February 1, 2016, the CDC said the E. coli outbreaks tied to Chipotle restaurants 'appeared to be
over'. The CDC closed the investigation even though it could not identify the primary reason
behind the contamination. "A contributing factor was a systemic issue with food handling. food
preparation, emplovee personal hygiene. They may have great policies for all that, but it gives

5. the appearance that consistent implementation across the different retail outlets weren't there. It's
hard to explain othenwise. Because the trace back and the imvestigation could not pinpoint a
primary ingredient that was the source of contamination, it gives the appearance that there were
multiple opportunities to cross-contaminate completely different menu item ingredients, so no
one place or no one cluster traces back to a single source, "commented Trevor Suslow, extension
research specialist in UC Davis' plant sciences division. In April 2016, Chipotle reported a
quarterly loss of US$26.4 million - its first in a decade as a public company - following the E.
coli outbreak. While restaurant sales declined by approximately 33%, the stock declined by 30%.
While the company insisted that it was being unfairly targeted by health regulators and the
media, it had no choice but to accept that the food-safety crisis had tarnished its brand image.
"Steve and I live for this company. We care deeply about our mission. For something like this to
happen shook the foundations of our confidence... it causes one to question one's leadership.. .1s
commented Monty Moran, co-founder and co-CEO, Chipotle. WHAT WENT WRONG?
Recurring outbreaks of E. coli, salmonella, and norovirus at various Chipotle stores not only
affected the company in the form of declining sales and market valuation, but also its brand
image. Analysts raised questions about the company's supply chain fundamentals, in-house
training, and food safety practices. While many other restaurant chains had faced a spate of food-
borne illnesses, Chipotle's problems were far more complex due to the scale and variety of the
problems. Analysts were of the view that merely using ingredients like organic vegetables,
responsibly raised pork, or antibiotic-free chicken would not be enough if they weren't safe for
consumption. In its 2013 and 2014 annual reports, Chipotle acknowledged that it might be at
higher risk for such outbreaks compared to its rivals as it used fresh produce and meats and used
traditional methods of cooking rather than automation. While analyzing how things had got so
bad at a brand built on the integrity of its ingredients, industry experts opined that Chipotle's
soaring growth could have played a role in its food-safety catastrophe. Since opening its first
restaurant in 1993, the restaurant chain had grown to nearly 2,000 locations (Refer Exhibit V for
Chipotle's Rapid Growth). Industry experts were of the view that such rapid growth could have
caused the company to lose some control over operations at the store level. However, Ells
disagreed with this view. "If you look at the quality of our ingredients over time, we've made
great strides in sourcing better-quality food, meats without antibiotics or growth hormones, more
organics, more local and sustainably raised foods. I'm deeply sorry this happened, but the
procedures we're putting in place today are so above industry norms that we are going to be the
safest place to eat.
Some analysts also wondered whether the company's focus on wholesome, simple ingredients
had left it grappling with the operational challenge of managing a supply chain of small farms

6. and suppliers. They questioned the viability of the company's model of scaling up a brand built
around fresh, locally sourced ingredients. "It stands to reason that, regardless of industry or
company, the more you proliferate suppliers, the harder it is to maintain quality. Obviously
there's this great marketing appeal - freshmess, local, organic - and you and I and the public don't
tend to see that message and think. "They've got a big management challenge." There, the
marketers may have won the challenge too quickly, "200 commented Jeffrey Karrenbauer,
President of supply chain consultancy Insight Inc. While Chipotle had set itself apart from its
competitors with its emphasis on fresh, high quality locally sourced ingredients, its supply chain
revealed something else. Its main pork supplier. Niman Ranch, was acquired by the agricultural
giant Perdue in late 2015. Niman Ranch has been a pioneer in improving animal treatment
standards by raising cattle and pigs 'naturally' without the use of hormones or antibiotics,
whereas several lawsuits had been filed against Perdue for mistreatment of animals. Chipotle
consumers were not happy with this development and expressed their concern on social media.
However, Chipotle assured its consumers that the livestock would be raised under strict animal
welfare protocols. "We have an internal team who visits our farms and checks on these things.
Niman Ranch has a stellar reputation, one I am sare they want to keep, "=21 responded Chipotle
from its official account. Chipotle also imported beef from Australia. At least 90% of the beef
the company used in its products was supplied by large-scale suppliers like JBS Australia that
also worked with McDonald's. A significant amount of lettuce was supplied by Taylor Farms,
one of the world's biggest salad producers which supplied its products for Burger King'.
Similarly, Chipotle's onions were purchased from River Point Farms, which also supplied to
Subway B and Frito-Lay". All of its carnitas, barbacoa, and steak came from one of Chipotle's
three largest 'central kitchens', Ed Miniat LLC. Ed Miniat processed 500,000 pounds of beef and
pork each week for the company. While Chipotle was criticized for not being fully transparent
about the sourcing of its food and all of its suppliers, it claimed that it had made the fast-food
industry react to its culture of using fresh ingredients. "We do share some suppliers with other
large restaurant companies. That does not mean we use the same ingredients or cooking methods,
"w said Chris Arnold (Arnold), Communications Director for Chipotle. While it was felt that the
vast network of suppliers might make it operationally challenging for the company to keep a
close watch on all the products coming in from different places, analysts pointed out that it might
be difficult on the part of small farms and suppliers to have access to the same resources as the
bigger ones, like regularly conducting microbiological tests on products. Some analysts were of
the opinion that the problem could have been with Chipotle's in-house training. The geographic
spread of the outbreaks at the Chipotie restaurants indicated that the issue might be aggravated at
the store level. "Given the fact that they had multiple foodborme illness outbreaks in such a short
timeframe, a lot went urong. I think more than likely the crux of the issue is that at least on some

7. level, there was a lack of training across the board. Because it wasn't at just one location. ..I think
Chipotle got so focused with the 'Food With Integrity' cumpaign that they lost track of food
safety in general, "31 said Francine Shaw, President of Food Safety Training