McDonald’s (MCD) is responding to an E. coli outbreak that caused its stock to drop by up to 7% on Tuesday.
Approximately 20% of McDonald’s U.S. restaurants have stopped serving Quarter Pounders and onions due to this outbreak, affecting about 2,700 locations out of 13,484 total U.S. restaurants.
The Centers for Disease Control and Prevention (CDC) issued a food safety alert on Tuesday, while McDonald’s became aware of the outbreak late last week. In response, the company swiftly removed the two ingredients from the affected restaurants when the number of reported cases was lower. Currently, there are 49 confirmed cases, including one death.
This number could rise, as it typically takes the CDC three to four weeks to confirm whether a sick person is part of an outbreak. During the period from September 27 to October 11, McDonald’s likely sold about 1 million Quarter Pounders in the affected regions.
Although McDonald’s has not yet identified the outbreak’s source, initial suspicions point to onions. Company spokespeople noted that the beef patties come from various suppliers, suggesting potential cross-contamination. However, McDonald’s safety protocols require burgers to be cooked at 175 degrees, which is above the E. coli kill temperature of 160 degrees. All affected locations source their onions from a single facility.
This marks the first time onions have been linked to an E. coli outbreak, according to a CDC spokesperson. The agency is continuing its investigation to determine which ingredient is responsible for the illnesses.
Some have drawn comparisons to Chipotle‘s (CMG) E. coli outbreaks between 2015 and 2018, which resulted in a $25 million fine from the FDA. However, McDonald’s is attempting to distance itself from that comparison, asserting that the current situation involves fewer reported cases and is likely isolated to just two ingredients. The CDC noted that other ingredients have not been affected.
TD Cowen analyst Andrew Charles remarked that it is “premature to compare” this incident to Chipotle’s past issues. Chipotle faced two unrelated food safety problems in late 2015, struggling to identify the source and taking years to recover its sales.
Charles, describing the situation as a “low conviction guess,” predicts that McDonald’s may experience a sales decline for about a month.
This outbreak comes at a challenging time for McDonald’s, which is already dealing with perceptions of value and market competition from rivals like Yum! Brands (YUM), Burger King (QSR), and Wendy’s (WEN), who have introduced their own price bundles.
In its Q2 earnings call, McDonald’s CEO Chris Kempczinski acknowledged that the company’s “value leadership gap has recently shrunk.” In the second quarter, U.S. same-store sales fell by 0.7%, marking the first decline in 16 quarters, while McDonald’s stock remains flat for the year, compared to a 22% increase in the S&P 500.
McDonald’s stated it is too early to assess the full impact of the outbreak on customer traffic. The company is focused on addressing the issue by collaborating with health authorities and further investigating the situation.
McDonald’s plans to provide more updates, with its Q3 results set to be announced next Tuesday before the market opens.
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