Chipotle Announces Intent To Spend $10 Million On Food Safety And $50 Million On Marketing.
How Do The Choices We Make Define Us As A Culture?
But Is 15 Cents Per Consumer Enough To Tell Your Story?
Jim Prevor’s Perishable Pundit, April 14, 2016
We’ve written about Chipotle’s food safety travails in pieces such as Chipotle, Bill Marler And Black Swan Events — How Much Money Do We Want To See Spent On Food Safety? and Spinach Crisis Déjà vu: Dr. Mansour Samadpour Retained By Chipotle To Boost Food Safety Efforts: Increased Product Testing, Outsourced Processed Produce, And New In-Store Kill-Steps Are Part Of New Moves To Keep Customers Safe But Is Chipotle Over-Promising? Will Food Safety Be The Priority As Memories Fade?
We recently received a piece from a top food safety expert who questioned what the chain’s reactions said about our society and its values:
Tall Buildings, Food Safety and a Culture’s Priorities
A successful restaurant chain suffers a series of catastrophic food safety outbreaks during the late summer and fall of 2015 that sicken people in numerous states throughout the US. In 2016, it begins a campaign to repair its brand. No one in the industry questions this approach, and the company’s reaction to its problems is as laudable as it understandable.
There is no lack of sincerity on its part; it clearly wants to make things right and aims to do so with both a well-crafted public relations campaign and a newfound commitment to food safety.
In an age when Wall Street, not Main Street, often determines business outcomes, the company’s crisis control strategy is nothing less than what most Americans would expect of it. If a company must be saved, its brand must be saved, and if its brand is to be saved, its image must be changed, and in order for its image to be changed, a significant financial investment is required. So it is that an examination of the company’s reaction to its problems is less a commentary on its own priorities, than it is a commentary on our nation’s priorities.
A number of psychologists have suggested that “if you want to know what a culture values, look at its tallest buildings. In the Middle Ages, the churches were the tallest buildings; in the 1800s, the schools and the institutions of government were the tallest. Today, in America, it is the banks and the corporate buildings.”
No one should begrudge a company the opportunity to make a profit; successful firms provide jobs, tax revenues, and opportunity in this country. But how a company invests its money is a reflection of the firm’s understanding of society’s expectations. What we finance as a nation says everything about our nation’s priorities. Maybe simply looking at where the best and the brightest American talent chooses to work is a measure of those priorities. Today, far fewer talented young professionals are drawn to jobs that produce goods and services than they are to Wall Street, K Street, and Madison Avenue.
So it should come as no surprise that the restaurant chain announced earlier this year that it was planning a substantial marketing posh, specifically that it “expects to spend at least $50 million in the first quarter of 2016” alone on “marketing, promotion, and public relations efforts.” This is aggressive, but not extraordinary. Consider that back in 2013, when 100 corporate communication executives from America’s biggest companies were surveyed, half reported “that they are responsible for a total public relations budget in excess of $100m.” In the immortal words of 1990s tennis star Andre Agassi — who was himself at the time a shill for Canon’s public relations efforts — “Image is Everything!”
At the same time, the chain is “pulling out all the stops to win back diners, including $10 million in food-safety spending… to help its smaller suppliers produce safer meat and vegetables. The money will be used to provide help with education and the implementation of… new food-safety standards.” We know that beyond the $10 million earmarked for supplier training and education, far more money is also being spent on lab testing and other food safety efforts. Yet, the company hasn’t quantified the other food safety efforts.
The $50 million and $10 million figures were widely reported in the media, but it may be a further commentary on our society’s priorities that no one in the popular or the trade press has questioned the ratio of those two huge monetary figures. Even the most powerful news ombudsmen did not take notice of the fact that media outlets are the beneficiaries of massive marketing and public relations budgets. So, whether intentional or not, it isn’t surprising that the press didn’t pick up on the ratio.
In fact, the way in which those two financial investments were reported by the press says a great deal about how they are perceived. Notice that the restaurant chain “expects to spend” money in repairing its image — suggesting something understandable and not the least bit extraordinary, while at the same time it is “pulling out all the stops” in improving its food safety training – suggesting a huge and monumental effort to prevent the problems that caused its damaged image in the first place.
And this too says much about our nation’s priorities. The degree of focus that buyers pay to food safety pales in comparison to their oversight of quality. And this is an issue far broader than just food safety — as a society we spend huge amounts of money reacting to problems of all kinds, but a veritable pittance attempting to prevent them.
Like the analogy to tall buildings, if you want to know what a company values, look at how it spends its money. And companies invariably spend money providing consumers with what they want.
Many years ago, a brash food safety scientist asked a seasoned produce buyer from a major retailer why his company didn’t educate or inform their customers’ about consumer misperceptions of production practices. The buyer calmly explained to his young cohort, “Our job isn’t to educate people; our job is to find out what they want and get it for them.”
What threatened the restaurant chain described above was a series of foodborne illness outbreaks. What made the chain successful was its ability to respond to consumer demands. So why should we be surprised that it will invest more money in one month alone on public relations than it will in the next few years on food safety education for its suppliers? And who do we have to blame for that firm’s accurate reflection of society’s priorities? No one other than ourselves.
1 Galarza, Daniela. Chipotle’s Recovery Plan Explained in Five Easy Steps. Eater. 2 February, 2016.
2 Masunaga, Samantha, Shan Li, and James Rufus Koren. Chipotle hopes free burritos and new food-safety efforts will bring back customers. The Los Angeles Times. 8 February, 2016.
3 Phipher, Mary, Ph.D. The Shelter of Each Other: Rebuilding Our Families. Riverhead Books. New York. 2008.
4 Sudhaman, Arud. Influence of 100 control PR Budgets Of More Than $6.5bn. The Holmes Report. 2 February, 2014.
It is a thoughtful piece and well worth pondering. At first glance, it certainly seems as if our society would be better served with more spending on substance — in this case, enhancing food safety — as opposed to marketing.
Yet, it is not so obvious when one digs deeper…
Although, of course, one can always spend more, the question is whether spending more will produce a better outcome. On this we have little evidence. We would question the efficacy of spending even $10 million on educating smaller suppliers. Indeed that expenditure sounds to us more like marketing, an effort to persuade consumers that Chipotle uses lots of small, local producers, than a serious food safety effort. Our experience is that these smaller suppliers, to the extent they fail on food safety, do not do so out of ignorance, which could be ameliorated with additional education. They do so because of three things:
A) The cost of food safety efforts is often lower per unit as producers grow. So if testing water every day is essential for proper food safety practices, a farm of two acres can do the daily water test at half the cost per unit produced of a one acre farm. As farms grow, the advantage is daunting.
B) Dedicated food safety personnel put a priority on food safety. If there is a multi-tasking farmer trying to do a lot of things, the priority of, say, harvesting before it rains or the freeze sets in, leads to neglect of food safety efforts. In other words, it is not that the producer doesn’t know the rules and needs more education; it is that playing by the rules imposes a cost on small producers — not getting the crops harvested before the freeze hits, for example — that is not true of larger operations with dedicated food safety personnel.
C) Self-interest is more of a conflict for smaller producers. Even if we were all to agree that fields showing evidence of animal intrusion ought not to be harvested for food that is going to be eaten raw – the execution of this rule has wildly different impacts on large and small producers and is so likely to be executed differently. If Dole has a harvesting crew in Salinas, it is easy enough to direct the foreman to withdraw the equipment if he sees any evidence of animal intrusion. Dole doesn’t typically own the field and the foreman gets paid either way. Plus Dole has many diverse businesses and so can make money in many ways. A small farmer has his few acres of greens; he sees a pig run through the field. He has enormous incentive to turn a blind eye to that pig. This field is all he has; if he voluntarily turns it under, he may well go bankrupt.
None of these three points depend at all on ignorance — they depend on financial facts that more training will not alleviate.
We also do not see the marketing expenditure as excessive. The population of the United States is about 320 million. Divide a $50 million marketing expenditure by the population and one is only talking about spending about 15 cents per person. That is pretty reasonable if one has a message to get across.
Our biggest problem is not with the amount of marketing expenditure. It is, instead, with what is being communicated in the marketing. Basically, ever since Johnson & Johnson had its Tylenol Crisis back in 1982, the goal of companies with safety issues is the same:
Step One: Recall everything. There were seven deaths, all in Chicago, all as a result of capsules, yet the company recalled all Tylenol.
Step Two: Identify the cause. Because the contaminated bottles came from many different factories, yet all the deaths were in Chicago, production tampering was ruled out. Instead it appeared that the bottles on the shelves had been tampered with.
Step Three: Develop a prevention program. The company developed a new “triple-sealed” package.
Step Four: Reintroduce the product. Once the problem was solved, the company did heavy price promotion and marketing to reintroduce the product and gain back market share.
The Washington Post ran a piece, Tylenol’s Maker Shows How to Respond to Crisis, and it exemplified the praise that the company received:
Any business executive who has ever stumbled into a public relations ambush ought to appreciate the way Johnson & Johnson is responding to the Tylenol poisonings. …
This is no Three Mile Island accident in which the company's response did more damage than the original incident. There has been no Nixonian "modified limited hang-out" at the J&J headquarters in New Brunswick, N.J.
No one at the McNeil Consumer Products subsidiary has tried to pretend that nothing is wrong, as Firestone Tire and Rubber Co. officials did when the Firestone 500 tires were disintegrating. …
Rather than resist, Johnson & Johnson has carefully, one step at a time, escalated its actions to deal with the crisis. First it shut down the Tylenol capsule production line, then it withdrew all capsules from sale. McNeil executives went on ABC's Night Line and the other networks' morning news shows to promise the capsules would not return to the shelves until a tamper-proof package had been perfected.
Finally on Thursday, J&J offerred to exchange all Tylenol capsules for Tylenol tablets. More than 22 million bottles of Tylenol capsules are believed to be in consumers' medicine chests and on pharmacists' shelves, almost $80 million worth of the drug at retail prices. There may not be a drop of cyanide in any of those bottles, but all of them will be destroyed, the company decided on its own initiative.
Replacing the capsules with tablets will cost Johnson and Johnson tens of millions of dollars, a stunning amount even for a popular and profitable drug like Tylenol. …
From the day the deaths were linked to the poisoned Tylenol until the recall on Thursday, Johnson & Johnson has succeeded in portraying itself to the public as a company willing to do what's right regardless of cost.
Serving the public interest has simultaneously saved the company's reputation. …
This model is effective, but the pursuit of it can cause problems of its own. In 2007, we wrote a series of pieces because Taco Bell, wanting to use the Johnson & Johnson formula, declared that the problem was caused by green onions when that was actually uncertain:
Boskovich Sues Taco Bell
Taco Bell’s PR Fiasco
Taco Bell Makes Ready Pac Its Scapegoat
Equally Chipotle has made various changes, but has little certainty that the changes it has made will actually prevent future problems.
It hasn’t done seemingly logical things such as insisting that all produce be audited to GFSI standards and be PTI-compliant, nor has it announced changes in Key Performance Indicators to prioritize food safety.
Focusing on these types of steps… and then marketing to consumers about the changes that have been made makes perfect sense.
And we do not believe that talking seriously to one’s customers and prospects is trivial or unimportant. But in Chipotle’s case, top executives were sent out to “reassure” consumers, not to communicate the truth. So you wound up with headlines such as this which we discussed in our piece, Chipotle, Bill Marler And Black Swan Events – how Much Money Do We Want To See Spent On Food Safety?:
Chipotle Execs: There is no E coli in Chipotle Today:
"I will say though, that we can assure you today that there is no E. coli in Chipotle," Ells said.
And instead of talking seriously to consumers about the costs of effective food safety programs and thus educating its consumers, Chipotle made statements such as this:
Steve Ells also made a pronouncement claiming that only Chipotle itself would pay the costs of its new enhanced food safety program:
Chipotle will not raise prices to cover the cost of new food safety procedures put in place after an E. coli outbreak sickened more than 50 people, the company’s founder and CEO said Tuesday during a visit to Seattle.
CEO Steve Ells would not say how much the new testing along its supply chain and safety protocols inside its restaurants are costing the chain of more than 1,900 casual Mexican restaurants. Suppliers also would not be paying for all the new testing requirements started, he said.
“This is a cost that we will bear,” Ells told The Associated Press at the beginning of a day stopping by Seattle restaurants to talk to employees about new food safety rules.
So instead of marketing to consumers in a way that makes them more literate in these issues, that prepares them to understand the costs of effective food safety programs, Chipotle makes unreasonable assurances — “no E. Coli in Chipotle” and unreasonable promises “Chipotle will not raise prices to cover the cost of new food safety procedures.”
We hope Chipotle will invest all that is necessary and appropriate to maintain proper food safety standards. We then hope it will invest its marketing dollars to raise the sophistication level of its customers so they recognize and appreciate what value is created through these expenditures.
And as to that retailer who said: “Our job isn’t to educate people; our job is to find out what they want and get it for them.” Well, ignorant people will want unobtainable things. So they will want food that is both the safest and the cheapest.
Since no retailer can deliver this, smart retailers will want to raise the literacy of their consumers so that those consumers won’t be wooed by a cheaper competitor because they will understand the impossibility of doing the right job for a distressed price.
Marketing expenditures such as this are great investments for the companies that make them and serve broad societal interests in having a more informed populace as well.