McDonald’s on Wednesday after the Centers for Disease Control and Prevention announced that its Quarter Pounder burger has been linked to E. coli outbreaks in some states, with the most outbreaks in Colorado and Nebraska. The stock (MCD) fell about 5% on Wednesday.
“This is an ongoing outbreak investigation,” the CDC said on its website. “Most of the sick people reported eating McDonald’s Quarter Pounder burgers, and investigators are working quickly to determine which ingredients were contaminated.”
The company’s shares fell as much as 10% in after-hours trading immediately after the news on Tuesday.
McDonald’s has stopped using raw sliced onions and quarter-pound beef patties in some states while the source of the infection is confirmed, the CDC said.
According to the agency, one person has died and 10 people have been hospitalized in 10 states due to the outbreak.
In an internal memo shared by McDonald’s on its website Tuesday evening, Cesar Piña, McDonald’s chief supply chain officer for North America, said the company was taking “swift and decisive action.” Initial results of the investigation “point to the possibility of some disease,” he said. It may be related to onion slices used in the Quarter Pounder and sourced by a single supplier serving three distribution centers. ”
“As a result, in accordance with our safety protocols, all local restaurants have been directed to remove this product from their supply and we have suspended the distribution of all sliced onions in the affected area,” the company said. said.
McDonald’s is located in the affected area, which includes Colorado, Kansas, Utah, and Wyoming, as well as parts of Idaho, Iowa, Missouri, Montana, Nebraska, Nevada, New Mexico, and Oklahoma. Temporarily remove menu items from your restaurant. All other menu items are also available.
Close-up of McDonald’s Double Quarter Pounder and Cheeseburger, San Ramon, California, August 3, 2024. (Smith Collection/Gado/Getty Images) · Smith Collection/Gado via Getty Images
BTIG analyst Peter Saleh said in a note to clients on Wednesday: “While this incident appears to be more subdued than what we have seen in the industry to date, the expansion of the investigation and continued coverage are likely to drive consumer traffic.” “It could become a burden,” he said. .
He added that the incident could affect the continued availability of the limited-time Chicken Big Mac and McRib, which is scheduled to end this year.
“We believe McDonald’s may reduce advertising supporting these (limited-time products) in the near future, as the message may fall on deaf ears amidst widespread news coverage,” he said. ” he explained. “The company may also want to shift the message from value to quality to reassure consumers about food safety.”
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“Prior to this incident, McDonald’s foot traffic was poor, and the spread of negative publicity will only make it more difficult to reignite sales in this environment.”
Fast food giant Chipotle (CMG) also experienced an E. coli outbreak in 2015 along with a norovirus outbreak. As a result, the company was forced to temporarily close 43 stores in Washington and Oregon.
The CDC declared the outbreak over in February 2016, and the company aggressively reviewed its food preparation methods.
But in the wake of the crisis, it took years for Mexican restaurant chains to rebuild brand trust and restore stock prices. The stock price has increased more than 500% since 2016.
Saleh, who maintained a neutral rating on McDonald’s, said in a note that it is “premature to begin drawing comparisons to Chipotle’s precedent in investors’ minds.”
“This incident was caused by repeated outbreaks and continued media coverage across the country, and while other quick-service chains have had localized E. coli outbreaks in recent years, the impact on sales has been minimal. It wasn’t accepted.” “For the time being we are in a wait and evaluate mode.”
Jefferies analyst Andy Barish agreed, adding in a separate note that “while it’s difficult to assess risk in the short term, Chipotle is not a clear read in our view.”
“While at MCD the issue/source was quickly identified and significant isolation was implemented, at CMG there was little visibility in the early stages of the outbreak and multiple stores were subsequently closed, but this is not the case at MCD at this time.” ” Barish said. His rating on the stock remains “buy.”
“That said, it is still too early to talk about initial consumer reaction, but we believe it may be far less severe than in the case of CMG.”
Alexandra Canal is a senior reporter at Yahoo Finance. Follow her on X @allie_canalEmail LinkedIn, alexandra.canal@yahoofinance.com.
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