McDonald’s (MCD) is working damage control as news of an E. coli outbreak tanked shares as much as 7% on Tuesday.
About one-fifth of McDonald’s US restaurants are not offering quarter pounders, or onions, as a result of the outbreak, Yahoo Finance has learned. That’s roughly 2,700 restaurants, based on 13,484 total US locations as of Q2 results.
While the CDC posted a food safety alert on Tuesday, McDonald’s learned of the outbreak late last week, per company spokespeople. The company quickly removed two ingredients from affected restaurants at that time, when the reported cases were lower. Currently, there are 49 cases, including one death.
That number is likely much higher. It takes 3 to 4 weeks for the CDC to know if a sick person is part of an outbreak. In the timeline that the CDC reported, from Sept. 27 to Oct. 11, McDonald’s typically sells about 1 million quarter pounders in that geography.
McDonald’s hasn’t pinpointed the source of outbreak yet, but it may be the onions.
According to spokespeople, the beef patties came from multiple suppliers, so an outbreak would mean a cross contamination across the board. Also, E. coli is usually killed at 160 degrees, and McDonald’s safety protocols call for burgers to be cooked at 175 degrees.
But all locations impacted source their onions from a single facility. If it is the slivered onions, it would be the first time onions were a carrier of this particular strain of E. coli.
Some are quick to remember Chipotle’s E. coli outbreak, which affected several ingredients from 2015 to 2018, and resulted in a $25 million FDA fine for the company.
McDonald’s is trying to shut down the comparison. Given the lower number of reported cases, the company believes the problem occurred further upstream in the supply chain and is likely isolated to two ingredients. The CDC pointed out it hasn’t impacted other ingredients.
In a note to clients, TD Cowen analyst Charles said it’s “likely premature to compare” the two. The burrito chain experienced two unrelated food safety issues, E. coli and Norovirus, in Q4 of 2015. At the time, Chipotle couldn’t identify the source quickly, and it took the company several years to recover in terms of same-store sales.
Calling it a “low conviction guess,” Charles said McDonald’s sales headwind will likely persist for roughly one month.
This outbreak comes as McDonald’s was tackling issues like value perception and market share as rivals like Yum! Brands (YUM), Burger King (QSR), and Wendy’s (WEN) doubled down on their own price bundles.