CAN CHIPOTLE MEXICAN GRILL RECOVER? ANALYST DOUBTS IT

The potential for a permanent loss of customers at Chipotle Mexican Grill Inc. in the wake of the Mexican fast food chain’s E. coli outbreak prompted a downgrade by Deutsche Bank on Tuesday.

Analyst Karen Short lowered her rating on the stock to sell from hold, while maintaining a US$400 price target that implies a further decline of more than 20 per cent.

She believes little has changed at Chipotle in the past few months, despite new food safety preparation procedures, along with new marketing and compensation programs to regain customer trust.

Short also cites another problem: Chipotle’s same-store sales were showing signs of waning even before the outbreaks, as a result of higher prices and a lack of new menu items.

“While there has not been evidence of any new incidences, the question still exists on whether or not Chipotle could weather another outbreak, especially as management now claims its supply chain and processes are the ‘safest’ in the industry,” the analyst said in a report. “More importantly however, we remain concerned with the potential permanent loss of customers ( from changes in brand perception or increased competition) as a result of these issues.”

Other issues that have recently emerged to cast further doubt about Chipotle’s recovery include out-of-stock items and longer in-store wait times due to increased safety standards.