McDonald's Fights to Control E. Coli Outbreak as Shares Fall

McDonald's is currently in damage control mode after a significant E. coli outbreak that has negatively impacted its stock price, leading to a 7% drop on Tuesday. The outbreak has forced the fast-food giant to halt the sale of quarter pounders and onions in roughly one-fifth of its U.S. restaurants, or about 2,700 locations, according to sources close to the company.

The Centers for Disease Control and Prevention (CDC) issued a food safety alert on Tuesday, though McDonald's reportedly became aware of the outbreak late last week. Initially, the number of reported cases was relatively low, prompting the company to remove the affected ingredients as a precaution. However, as of now, the number of confirmed E. coli cases has risen to 49, including one death. Experts warn that the true number of cases may be significantly higher since it often takes three to four weeks for the CDC to confirm whether a sick individual is part of a broader outbreak. During the CDC's reporting period between September 27 and October 11, McDonald's typically sells around one million quarter pounders in the affected region.

Although McDonald's has yet to definitively identify the source of the contamination, preliminary evidence suggests the outbreak could be linked to onions. Spokespeople for the company have noted that the beef patties served in the affected locations come from various suppliers, which makes cross-contamination unlikely. Additionally, the cooking temperature for McDonald's burgers exceeds the 160-degree threshold required to kill E. coli bacteria. However, the onions used in these locations are sourced from a single facility, raising suspicions that they could be the culprit. If confirmed, this would mark the first time that onions have been linked to this particular strain of E. coli.

Industry observers are quick to draw comparisons between McDonald's current predicament and Chipotle's infamous E. coli outbreak from 2015 to 2018, which affected several ingredients and led to a $25 million fine from the FDA. However, McDonald's is working hard to distance itself from this narrative. The company believes that the outbreak is isolated to two ingredients and occurred further upstream in the supply chain. Unlike Chipotle, which struggled to identify the source of contamination quickly, McDonald's remains hopeful that the issue will be resolved more swiftly.

In a note to clients, TD Cowen analyst Charles advised that it is likely premature to compare McDonald's current situation to Chipotle's prolonged food safety crisis. Chipotle faced two unrelated issues, E. coli and norovirus, which complicated the recovery process. McDonald's, on the other hand, expects this sales downturn to last about a month.

This outbreak comes at a time when McDonald's was already grappling with other challenges, such as consumer concerns over value perception and market competition from brands like Yum! Brands (parent company of Taco Bell and KFC), Burger King, and Wendy's. As competitors ramp up their own price bundle strategies, McDonald's is eager to resolve this health scare and prevent further damage to its reputation.