The financial impact of foodborne illness outbreaks at restaurants: Chipotle Mexican Grill

Abstract

As demand for food away from home increases, outbreaks at restaurants become an important source of food-related illness. In the United States, over 60% of foodborne illness outbreaks occur at restaurants and 97% of outbreaks are limited to a single state. Despite this, we currently know little about restaurant outbreaks and in particular, single-state outbreaks are not well understood. We use Chipotle Mexican Grill's eight outbreaks (2015–2018) to evaluate the media and stock market responses to both single and multistate outbreaks. Using news and stock market data, we provide evidence that multistate outbreaks brought swift stock price declines and single-state outbreaks' impact depended on their timing, rather than their severity. Before Chipotle's more well-known, multistate outbreaks, the firm's single-state outbreaks brought little reporting and no financial losses, whereas after the multistate food safety events, single-state events resulted in national media coverage and large financial impacts. Our findings are consistent with the literature on food scares that can result in chronic low-level anxiety, which can bring about a large resurgence of concern for smaller outbreaks. The lessons learned from Chipotle's case underscore the importance of investment in outbreak prevention. [G14 (Information and Market Efficiency, Event Studies, Insider Trading)].