The Chipotle sabotage theory makes its return
Consultant says illness a boon for those who had the foresight to short stock
Yet another outbreak of food-borne illness last week at Chipotle Mexican Grill did what it usually does to the burrito chain: The stock price plummeted. It’s bad news — particularly for the patrons who got sick — but it’s a boon for anyone who had the foresight to short the stock.
The latest outbreak was first noted by iwaspoisoned.com, a website that crowdsources reports of customer illnesses following visits to restaurants. The goal, it says, is “safer food, safer communities and a healthier economy.”
Yet, as Bloomberg reported last week, hedge funds looking to profit from others’ bad luck can also access a “souped up” version of the site for a US$5,000 monthly fee.
Aaron Allen, principal at Aaron Allen & Associates, a restaurant industry consultancy, posited in a LinkedIn post on Monday morning that the Chipotle illness might not just be a matter of luck.
“A lot of things stacked up that made it suspicious,” he said Monday, “and when you look at it from a statistical point of view, even more suspicious.”
His group has no financial interest in the chain, Allen said, and he has previously lauded the chain’s pre-scandal marketing.
He’s not the first to publicly speculate about the possibility that corporate sabotage is behind Chipotle’s woes. A similar theory — which was largely dismissed — circulated two years ago when the chain was hit by outbreaks of E. coli, norovirus, and salmonella. The stock price plummeted at the time, costing the company billions of dollars in market capitalization.
While Allen can’t prove his theories about Chipotle, he argues that corporate sabotage of a similar nature has happened in the past. A woman planted a severed finger in her Wendy’s chili more than a decade ago. In the 1980s, Tylenol capsules were purposely tainted with potassium cyanide, leading to seven deaths in the Chicago area.
Plus, there was a lot of money on the table for Chipotle short sellers — as much as US$459 million, according to Allen’s calculations — before there were any inklings of a food safety problem.
“Chipotle short-sellers saw their ambitions rewarded with US$55 million in less than one day,” he wrote of the latest scare.
Allen said his team, which includes a statistician and food safety experts, found a number of “statistical anomalies.” First, he wrote in his post, the time of year raises questions; while 60 per cent of food safety outbreaks occur from December to May, Chipotle’s happened from August to December. Second, Chipotle experienced four times the number of norovirus outbreaks a chain of its size would be expected to have, and that’s not even counting the E. coli and salmonella. And, he notes, significantly more people got sick from each of the outbreaks than normally do from the same pathogens. The average norovirus outbreak causes about 18 illnesses, while salmonella usually leads to about 25. At Chipotle, more than 200 people were sickened from a single August 2015 norovirus outbreak, and 64 fell ill from the same month’s salmonella problem.
“We’re not saying this as a definitive,” he said. “But if you were a short-seller and you were looking for where there would be the most financial gain in the restaurant industry, the best way is a food safety scare, and the best stock would be Chipotle.”
Chipotle did not respond to Allen’s post but said it was aware of the 2015 theories and “did not see any evidence to support them.”