Week 2 – Ethics in Practice Case

Chipotle’s Struggle with Food Safety: Back on Top Again?

When five customers of a Seattle, Washington, Chipotle entered the restaurant in July 2015, they placed their normal orders…burritos, bowls, tacos—you name it. These customers expected to indulge in what they had come to love over the years, what Chipotle has preached since opening its doors in 1993, “Food with Integrity.” Real, fresh, responsibly raised ingredients that “just taste better.”

Unfortunately, for these five patrons, integrity was not served up on that summer day. Approximately three days after consumption, the symptoms of an Escherichia coli (E. coli) bacterial infection began to set in—upset stomach, body aches, sporadic cramping, and, worst of all, persistently bloody stools. The infected were able to trace their ingestion of bacteria back to their beloved Chipotle meals. However,the source ingredient of this particular outbreak was not immediately determined. Unfortunately, this incident was just a precursor of the crisis to come.

Months later, in December 2015, Boston College students flocked to their local Brighton, Massachusetts, Chipotle restaurant, looking for a quick and hearty meal. Members of the varsity men’s basketball team, club hockey players, and many others were expecting to have their cravings satisfied, per usual, and placed their orders without hesitation. However, like the Chipotle patrons in Seattle, the students became ill shortly after they ate their food. Unbeknownst to the diners, the chicken that had been prepared in the restaurant was not kept at a warm enough temperature in the assembly line. The lack of heat combined with workers showing physical symptoms of illness provided the perfect breeding grounds for a norovirus to spread. Like an E. coli infection, a norovirus infection is not instantaneous, so these folks still enjoyed their meals, but they certainly paid for them later on. The students soon found themselves with persistent diarrhea, painful stomach cramps, fevers, and vomiting.

The problems did not stop with this incident. Within weeks of the Boston incident, outbreaks of E.coli from Chipotle meals began to occur across the nation with no explanation as to their origins. The company’s stock price began to slide, making the fall of 2015 a difficult quarter for Chipotle. Overall, from July to December 2015 there were more than ten reported outbreaks nationwide, ranging from E. coli to norovirus to salmonella. At least 500 people across 13 states were affected by the outbreaks—luckily, no deaths were reported. Sales tumbled, along with Chipotle’s share price. Chipotle closed more than 40 stores, primarily in the northeast region of the United States. However, food safety issues continued to plague Chipotle beyond these incidences, with more than 1,100 people sickened between 2015 and 2018. The Justice Department eventually charged Chipotle with violating federal law and negligence in maintaining health standards. The chain paid $25 million in criminal fees to avoid conviction—the largest fine of its kind to date.

The History of Chipotle Steve Ells, the founder of Chipotle, is a man who has always enjoyed cooking. Ells began cooking at a young age, as his mother would put him to work in the kitchen helping her bake and prepare meals. As he grew, it was not uncommon in high school and college for Ells to host elaborate dinner parties for his friends and family, where he would serve them with delicious meals. On completion of his undergraduate degree and unsure of where he was going to go next, the aspiring chef made a deal with his father. He had to work for a year in the restaurant industry to ensure that he truly wanted to be in the business, and then his father would pay for culinary school—but, it had to be “the best culinary college in America.”

Ells held up his end of the bargain and went on to the Culinary Institute, graduating in 1990. After graduating, Ells soon moved to San Francisco where he gained both experience as a sous-chef and an appreciation for Mission-style burritos. Ells was not just attracted to San Francisco’s Mexican food itself, but the way it was prepared and packaged, the simplicity of a foil wrap with everything tucked away inside. After receiving a loan from his father and locking down a storefront, Ells opened the first Chipotle restaurant in Denver in July of 1993.

No recipes, no calculated formulas, just fresh ingredients for customers to look at and choose from: this is the way Ells designed his business so that it would be extremely simple to manage and operate, because, in his words, “I didn’t want to spend much time there.” The first restaurant had no individual menus and no menu board as you see when you walk into a current-day Chipotle. Customers were supposed to order what they wanted based on what they saw in front of them. Although reportedly some customers walked back outside confused, the majority were happy that they had so many fresh food options. Ells was fast to respond to customer demands and quickly created the concept of the burrito bowl when he was trying to shed the tortilla. He wanted all of his customers to enjoy their meals, leaving them with a desire to come back again.

It was not long before the business started to take off. The first few Chipotle restaurants were established with the help of Ells’s parents; however, Ells soon realized that larger investors would be necessary to continue to fuel the company’s growth. Ells’s parents were able to gather just over $1 million from close friends, and then they began to hunt for larger contributors. In 1998, when Chipotle had just 13 stores opened, McDonald’s invested approximately $50 million.

More significant than the cash received, Chipotle gained access to McDonald’s supply chain, construction knowledge, and vast industry knowledge because of the buy-in. The two chains had an interesting relationship in that the only common menu items were the soft drinks. From 1998 to McDonald’s divestiture in Chipotle in 2006, the chain grew to more than 500 restaurants, and its growth did not cease after parting ways with McDonald’s. Today, Chipotle boasts more than 2,622 locations.

Managing the “Perfect (Public Relations) Storm” Some experts believe that Chipotle managed the crisis well. Chipotle was noted to be “aggressive and forthcoming” in its approach to closing affected stores for deep cleaning, going so far as to close all stores on one day to hold a companywide meeting to discuss the changes. In addition, the company revealed it would provide fully paid sick days to ill employees who are now required to stay home an additional five days from the time their symptoms disappear. Fortune magazine referred to this as a “one-two approach” that not only addressed norovirus concerns but also proved Chipotle’s loyalty to its employees. The chain also hired former Taco Bell CEO Brian Niccol to run the chain in 2018. And these changes seemed to pay off for the long term. Chipotle’s share price has recovered and tripled since the final resolutions to the outbreaks. By June 25, 2021, Chipotle shares (NYSE:CMG) were trading at $1,494.25 a share, outperforming many of its competitors. Even in the midst of the COVID-19 pandemic, Chipotle made its debut on the Fortune 500 at 464 in a year when Fortune magazine noted, “much of the restaurant industry was wrecked by COVID-19 pandemic.”

Many have said that the chain’s ability to be upfront and honest with the public through the years has been the key to its success, as well as key to helping them stay afloat during times of crisis. Chipotle was founded and grown as an “anti-fast food” fast-food restaurant, sacrificing efficiencies and cost savings to prioritize quality and customer satisfaction—“people-before-profits” —and this message resonated even during the food safety issues. The chain posted information to its website regarding the outbreaks and released information to media when appropriate.

Following the food safety crisis, Chipotle implemented a new food safety program to assess the safety risks of every ingredient on its menu. This included DNA-based testing of its ingredients before being shipped to Chipotle locations and changes to food prep and handling, including new training for safety standards for workers. They provided new safety updates on their website under “safety advancements” and created new models in the supply chain to further mitigate risk. The goal continued to be to provide the freshest food possible at a low cost to customers, despite the challenges of using local supply chains. Nevertheless, one article about Chipotle, postcrisis, was titled “Chipotle Struggling to Get Customers Back.” It cited the need for Chipotle to “tweak” its food safety changes and beef up its advertising. That month, Chipotle issued free burritos to any customer who texted a code to a designated phone number. This marketing campaign proved successful, with 5.3 million people texting the number, and 67 percent of those people redeeming the coupon. By combining damage control tactics, new leadership, positive press, and driving traffic to its locations, Chipotle seemed to have successfully gained back its lost customer loyalty and trust.

Nevertheless, the foodborne illness scare and other issues continue to follow Chipotle. In 2020, Chipotle employees in New York City restaurants reported to the National Consumers League, a nonprofit consumer advocacy group, that the company was not complying with food standards. In May 2021, the Colorado Department of Public Health and Environment (CDPHE) investigated a Chipotle near Denver for possible norovirus outbreaks when eight patrons and employees fell ill.

Also in 2021, problems with employee labor practices surfaced when New York City workers complained about labor law violations, including insufficient notice about schedules, lack of break periods between shifts, failure to provide extra pay for multiple shifts, denying requests for time off, failure to pay for sick leave, and more. In April 2021, New York City filed suit against Chipotle for these alleged violations of New York City’s Fair Workweek Law, which took effect in 2017, as well as the city’s Paid Sick Leave Law, which was enacted in 2014. According to the complaint, workers are owed more than $150 million in relief for the violations that took place between 2017 and 2019.

Chipotle has responded with vigorous denial of the allegations, saying that it is a “dramatic overreach.” The lawsuit acknowledges that Chipotle attempted to comply with the law since 2019, but that violations are ongoing. The big question remains, however: Will Chipotle survive this latest crisis, as it did following the norovirus outbreaks between 2015 and 2018? To date, the shareholders seem to think so; however, much will depend on whether Chipotle can avoid allegations of poor food safety practices and labor law violations in the future.

Questions for Discussion

1. What are the ethical issues of this case?

2. How would you describe Chipotle’s handling of the food safety crisis? How does this compare/contrast to its current handling of labor issues in New York City?

3. What is the role of the Centers for Disease Control and Prevention (CDC) in food safety situations? How did it help or hurt Chipotle in managing the crisis?

4. Think about the conventional approach to business ethics that we discussed in Chapter 6. Do you think that these food safety and labor issues are common in the retail food business? What standards and norms apply here? How would a principles approach and an ethical tests approach enhance the ethical decision making of Chipotle management on labor issues?

Requirements:

· There is no minimum or maximum required number of pages. Your analysis will be considered complete, if it addresses each of the 4 components outlined above.

· Use of proper APA formatting and citations. If supporting evidence from outside resources is used those must be properly cited. A minimum of 3-5 sources (excluding the course textbook) from scholarly articles or business periodicals is required.

· Include your best critical thinking and analysis to arrive at your justification.

· Approach the assignment from the perspective of the senior executive leadership of the company.

Submission: Upload/attach your completed paper to this assignment by the due date. Please see the Course Syllabus for the actual due date.

Guidelines for Analyzing Cases

Problem and Issue Identification

1. What are the central facts of the case? What assumptions are you making about these facts?

2. What is the major overriding issue in the case? What major question or issues does this case address that merits study at this point in the course?

3. What sub-issues or related issues are present in the case that merit consideration now?

Analysis and Evaluation

1. Who are the stakeholders in the case, and what are their stakes? What challenges, threats, or opportunities are posed by these stakeholders?

2. What economic, legal, ethical, and philanthropic responsibilities does the company have, and what is the nature and extent of these responsibilities?

3. If the case involves company actions, evaluate what the company did or did not do in handling the issue affecting it.

Recommendations

1. What recommendations do you have for this case? If a company’s strategies or actions are involved, should the company have acted as it did? What action should the company take now? Why? Be as specific as possible. List several options as well as the pros and cons of each alternative. Be prepared to discuss why you eliminated those options you discarded and defend your chosen alternative. Mention and discuss any important implementation considerations. This last step is crucial because recommendations that cannot be implemented are worthless.

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