By now, I suspect everyone is well aware of the fall-out from Chipotle's foodborne illness outbreaks. While I've previously discussed some aspects of the outbreaks, I want to touch on a different dimension here. What are the financial consequences and when will Chipotle recover?
First off, it is almost impossible to answer the "when will Chipotle recover" with any degree of certainty. I've seen several stories on impending lawsuits, and the timing and outcome of those legal disputes are somewhat erratic and hard to predict.
In any event, let's look at what's happened thus far. Chipotle started having some outbreaks in late summer and early fall, but when the the CDC began reporting outbreaks associated with Chipotle in early November 2015, that's when things started heading south. Since the middle of October, Chipotle's stock (symbol: CMG) price has fallen by about 40% (from above $700/share to low-to-mid $400/share). The overall stock market has been tanking in recent weeks, but as the chart below shows, Chipotle's stock (the solid black line) fell far more than did the S&P 500 (the light purple line).
One of the things this result illustrates is the private incentive for companies to invest in food safety. Here's a little snippet from my forthcoming book, Unnaturally Delicious, on that topic:
The statistics cited in the above paragraph come from a couple academic papers by Michael Thomsen and colleagues (see here and here). Here's another interesting paper from a group of agricultural economists showing that consumers exposed to information about a food safety outbreak reduced their willingness-to-pay for the affected brand up to 50 days after they received the information. They conclude:
So, the length of time it takes to rebound depends, in part, on what sorts of additional positive and negative information come out about Chipotle. It may also be useful to look at similar events for other companies. Taco Bell had a widely publicized Salmonella outbreak a few years back, and it really hit the news around the 1st of February 2012. Here's a plot of the stock price of YUM! Brands, which owns Taco Bell.
You can see a downward movement in mid 2012, but the price rebounded by the end of the year (before falling again). But, the mid-2010 fall was less than 10%. This helps illustrate the fact that it's hard to generalize. How the public responds to a recall depends on how they view the company and how the company responds, among other factors.
It's also useful to take a step back and take a longer view. Yes, the price of Chipotle has fallen about 40% in the past few months. But, if you'd bought their stock back in 2008, when the price was around $50/share, you'd still be up over 700% after the recalls.