Why companies need crisis strategies

We’ve been using Chipotle as a test case over the last few months. It’s been a good example of what happens to a company after it is hit with bad news. In Chipotle’s case – the outbreak of e Coli. Investors tend to scramble until facts firm up, and as the result the stock drops.

Chipotle reported Q4 this month, and as expected, they were not good. The key number to track in any business with physical locations is ‘same store sales’  – comparing sales for stores from one year to the next is a key indicator of growth. For Chipotle, it dropped for the first time ever. And by 14%. It was a significant drop.

The good news it that it looks like the stock has stabilized, at least as far as current facts go. But the bad news is that a significant number of customers turned their backs on the company.

But it is important here to look at what went wrong and what to watch out for going forward. Chipotle’s brand is built on the quality of its food. And when that quality faltered, and made people sick, the brand got battered.

All companies need a crisis PR plan – clearly Chipotle didn’t have one in place. The issue was bad enough – but their response was also awful:

Did you hear a message about what they were doing to safeguard their ingredients or their processes? Was there signage, or a marketing campaign, or a PR push, or announcement of new processes and protocols? Did they shut down all stores for sanitation and sterilization even just as a show of effort? Did they immediately retrain all staff on hygiene?

Chipotle shut down stores for a few hours for video training last month, which is a good start. But the big plan is to give away free burritos. It’s a strange policy to win back customers. What will their campaign be? “See, you didn’t get sick!”. It seems strange. And because they never found the source of the outbreak, it is impossible to know if they really solved the problem.

So what to do if you have Chipotle in your portfolio? We believe that if they can get through this crisis and win back clients in the short term, their long term prospects look good.

But see what people are saying about the brand. If they can’t rescue their brand and image of quality, they are not going to win their customers back. They need a strategy. Look out for one!

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