Restaurants react to romaine recall
E. coli outbreak not likely to affect earnings.
Most people think about holiday gifts as the year comes to a close, but companies are focused on something else – fourth-quarter and year-end earnings. Will the E. coli outbreak likely linked to romaine lettuce have any effect on restaurants?
Not likely, experts say. “People don’t stop going out; people will just avoid salads,” BTIG managing director Peter Saleh said. “There could be a trade to something more expensive on the menu.”
For most publicly traded fast-food and fast-casual restaurants, salads represent a very small percentage of their business. These chains make their money on their signature foods, such as burgers, chicken and tacos, as well as on higher-margin items, such as drinks and limited-time offers.
On Nov. 20, the U.S. Food and Drug Administration announced that it was investigating an E. coli O157:H7 outbreak that has now sickened 43 people in 12 states, including 16 who were hospitalized.
“The impact is going to be fairly nom- inal overall,” Saleh said. “I think it’ll be a nonevent when these companies will report the fourth quarter.”
Even a chain such as Chipotle Mexican Grill, which has more of a salad presence, will be unaffected, he added. For traditional fast-food eateries, salads represent sales in just the low- to midsingle digits.
And look at McDonald’s, which had a company-specific problem during the summer when 511 people in 16 states who ate Golden Arches salads and were infected with the parasite Cyclospora. The chain removed the suspect salad blends from about 3,000 of its locations and then replenished it with a new supply
“It really hasn’t been something that is particularly material,” CEO Steve Easterbrook said during the second-quarter analyst call July 26.
The current romaine outbreak is tied to no particular brand or industry. On Monday, the FDA said it had traced the contaminated lettuce to the Central Coast regions of California and on Wednesday identified six specific counties – Monterey, San Benito, San Luis Obispo, Santa Barbara, Santa Cruz and Ventura.
Restaurant consultant John Gordon of the Pacific Management Consulting Group agreed the romaine lettuce problem will be negligible for the industry, pointing out most fast-food places don’t use romaine, rather iceberg or leaf lettuce. Those that do offer dishes with romaine, such as Caesar salads, are swapping it out for other greens.
“It’s not rocket science to move to another type of lettuce,” he said, estimating the food loss costs at $25 per case. “Some is thrown out, but it’s not earth-shaking.”