The E. coli outbreak at McDonald's gives the stock its worst day since Covid

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CNN
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A day after an E. coli outbreak linked to Quarter Pounders resulted in one death and 10 hospitalizations in the western United States, McDonald's went into full mitigation mode.

“We're very confident that you can go to McDonald's and enjoy our classics,” Joe Erlinger, president of McDonald's USA, said Wednesday on NBC's “Today.” “I want to tell our consumers that you can confidently go to McDonald's today.”

The U.S. Centers for Disease Control and Prevention issued a food safety alert Tuesday, reporting at least 49 illnesses in 10 states. Most of the illnesses are in Colorado and Nebraska, and most of the people who got sick ate Quarter Pounders at McDonald's.

“We acted quickly yesterday and removed the Quarter Pounder from our menu,” Erlinger said. “If there was a contaminated product in our supply chain, it has most likely already passed through that supply chain.”

McDonald's (MCD) shares plunged 7% in premarket trading, on track for their worst day since March 12, 2020, as the world went into Covid lockdown.

The incident — and investors' immediate rush for the exits — is reminiscent of Chipotle's years-long battle with E. coli and norovirus outbreaks at multiple locations that began in the summer of 2015. Over the course of three years, during which Chipotle repeatedly failed to contain numerous outbreaks, the once highly valued stock cratered, losing two-thirds of its value.

Chipotle ultimately had to settle for minimal fines — $25 million from the U.S. Food and Drug Administration in 2020 — but it struggled to win back devalued customers. The company eventually hired a new CEO, Brian Niccol, who started a new job at Starbucks just last month. Niccol helped Chipotle bring about change in 2018 by retraining the company's grocers to promote safety. The company also tested its employees on food safety standards.

A year after Niccol's launch, the company's stock has fully recovered from the three-year outbreak nightmare.

The Chipotle outbreak is the worst-case scenario for any restaurant chain, and the E. coli situation at McDonald's appears to be limited to a supply issue, at least for now. The U.S. Food and Drug Administration determined that chopped onions were likely the source of the contamination, and McDonald's has stopped using those onions and quarter-pound beef patties in several states, the CDC said.

Still, the investigation is ongoing and investors are nervous. In a statement, the company said it was taking swift and decisive action to prevent the outbreak from spreading.

“Across the McDonald's system, serving customers safely in every single restaurant, every day is a top priority and something we will never compromise on,” the company said.

McDonald's scandal story

McDonald's is no stranger to food scandals. In December 2003, it was discovered that a McDonald's supplier had experienced a mad cow incident, causing the stock to temporarily plunge. The company said later that month it had found no evidence that customers were avoiding the restaurant chain because of this isolated incident.

In 2004, filmmaker Morgan Spurlock harshly criticized McDonald's for serving unhealthy food in his hit documentary “Super Size Me.” The film and its subject matter received significant media attention, and McDonald's dropped its oversized menu options later that year. But investors were not impressed: the shares rose by around a quarter this year.

In 2011, it was discovered that the company had used a type of beef known colloquially as “pink slime” that had been treated with a chemical called ammonium hydroxide. The company announced the following year that it was no longer using pink slime, but rumors of continued use plagued the company for a decade — and McDonald's had to release another statement in 2021 to clarify the matter.

However, McDonald's most famous food scandal was the hot coffee trial in 1992, in which a woman spilled coffee on her lap and suffered third-degree burns. A jury agreed with her claim that the coffee was unreasonably hot, which it was, according to the American Museum of Tort Law. The law museum said the coffee was “30 to 40 degrees hotter than coffee served by other companies.” The plaintiff in this case was initially awarded nearly $3 million, but after an appeal she settled for less, about $480,000.