People Don’t Forget: A Social Media Fueled Crisis in the Restaurant Industry
Its hard to find an industry unaffected by the pervasiveness of social media and the restaurant/fast food industry is no exception. The evolution of the restaurant industry over the last 10-15 years in response to this new social landscape is remarkable and can be seen in everything from crisis management, marketing, and advertising to plating, presentation, and decor. Partly because we are so excited to be at the National Restaurant Association Show next month, but mostly because we love food so much, we decided to do a whole blog series on some of the ways social media has changed the restaurant industry.
Today we are going to look social media’s uncanny ability to take a bad situation and turn it into a full-blown crisis. For example, it wasn’t that long ago that a report of food poisoning wouldn’t spread beyond that person’s immediate family or close friends (because who wants to tell THAT story at a dinner party?). It was, for the most part, an isolated event.
But today, that story goes straight to Yelp and Twitter and has the ability to influence erupt into a full-blown crisis, influencing the buying decision of hundreds or even thousands of people.
Taco Bell vs. Chipotle vs. Jack in the Box
To get a better sense of the potential crises inherent in today’s extremely social world, let’s do a quick analysis of three very similar events that had different outcomes.
In 2015, Chipotle was faced with a problem that was just a touch beyond a case of food poisoning. Ok, so an E.coli outbreak is more than “just a touch” worse than food poisoning.
From October to December of 2015, 53 people in 9 states were infected with E.coli from Chipotle food. Due to the outbreak, Chipotle saw an immediate 16 percent drop (it got worse from there) in same-store sales and according to a 2016 article from CNN Money, profits dropped 82 percent compared to the prior year. In October 2015, Chipotle’s stock “was changing hands at $757. By Feb 2016, it had dropped to $475 — a 37% decline. Chipotle had lost $8 billion in value since its stock peaked in August 2015.” Suffice to say the fallout was significant.
In 2006, Taco Bell had its own E.coli outbreak. I know what you’re thinking, “Not Taco Bell!” Yes. Taco Bell.
According to the CDC “71 persons with illness associated with the Taco Bell restaurant outbreak have been reported to CDC from 5 states.” During the peak of the outbreak, sales plummeted 20% nationally and 35% to 50% in the Northeast, said David S. Palmer, a UBS Equity Research analyst(LA Times). Taco Bell saw an overall 5 percent decrease in same-store sales for the fourth quarter (CNBC).
JACK IN THE BOX
Finally, for kicks, let’s do one more comparison. This one coming from investment site The Motley Fool.
In 1992-1993 there was an E. coli outbreak linked to Jack in the Box (NASDAQ:JACK). Author Adam Levine-Weinberg points out, “Jack in the Box’s E. coli outbreak was far worse than Chipotle’s. From late 1992 to early 1993, more than 500 people in the western U.S. became infected with E. coli, mainly from eating regular-size hamburgers from Jack in the Box. Four people died. By contrast, Chipotle’s E. coli outbreak only affected 60 people, with no fatalities. (There was also a norovirus outbreak linked to Chipotle in December, but that is a much less serious illness.)
Yet despite the severity of Jack in the Box’s E. coli outbreak, its comparable restaurant sales fell only 22.2% at the height of the crisis. Furthermore, its sales trend quickly recovered. In Q3 and Q4, Jack in the Box reported comp sales declines of about 9%.”
So what was the difference between these three restaurants? Why did Chipotle lose so much money and struggle so much to rebuild trust when Jack in the Box’s incident was much worse (I mean c’mon, people died!) and yet the fallout was relatively small?
Levine-Weinberg astutely points out, “The difference in the impact of these E. coli outbreaks on sales results can probably be traced to social media. Social media increased awareness of Chipotle’s food safety problems in the first place, and Chipotle’s food safety issues continued to be the butt of jokes on social media long after the initial outbreak.”
MEASURING THE IMPACT OF SOCIAL
While we need to be careful about drawing conclusions from insufficient data, I think it is worth at least a quick comparison of the circumstances impacting Chipotle and Taco Bell.
First, if we look at the Taco Bell outbreak from a historical perspective we see that:
- Facebook was still in its infancy (only 2 years old).
- Twitter was less than a year old.
- Yelp existed but wouldn’t go public for six years.
- There was no such thing as Instagram or Tumblr or Snapchat.
- People still had @Yahoo.com email addresses (*shivers).
On the other hand, by the time it happened to Chipotle in 2015:
- Facebook had 1.5 billion monthly users in 2015 Q4.
- Twitter had 305 million.
- Snapchat, Tumblr, and Instagram were all booming.
- Yelp had 142 million visitors 2015 Q1.
To take it a step further, we can go back to the 90’s (not literally, that would be awful) to look at the circumstances surrounding Jack in the Box. Access to current information was limited to word of mouth, television, radio, and newspaper. If you didn’t read the newspaper or watch the news you probably wouldn’t have any idea that anything had happened. And for those that watched the news or read the newspaper, this story probably wasn’t repeated over and over, multiple times a day for weeks at a time. The story would get a headline or two and talked about on the news maybe a handful of times after the initial coverage; basically, the lifespan would be quite short.
There are obviously many factors influencing the sizable drop in Chipotle’s sales that extend beyond Yelp reviews or Tweets, so I’m not saying that social was the sole culprit to blame. For example, many PR professionals believe that the poor handling by Chipotle’s leadership led to significant losses. But I would also argue that without the reach of social media there would have been many people who had no idea there was a problem with Chipotle’s leadership. Social media certainly made the situation worse by making the outbreak part of Chipotle’s social identity online and giving it a much longer lifespan than it would have had in the 90’s. As inseparable as the Olsen twins (Google it), you could not read about Chipotle without reading about E.coli.
The restaurant industry is one of the most scrutinized and susceptible to the whims of a very volatile public opinion. A solid crisis management strategy is no longer optional since, as we can see from the comparison of Jack in the Box, Taco Bell, and Chipotle, news today has a far greater reach and permanence than it did just a few years ago.