Chipotle's viral portion size controversy has sparked a shareholder lawsuit
Chipotle Mexican Grill (CMG) is facing a class action lawsuit from shareholders who claim the company misled investors about inconsistent portion sizes, leading to higher costs and a significant dip in stock value.
The lawsuit, filed against Chipotle executives, alleges that the company failed to disclose it was serving smaller portions at its restaurants, leaving many customers “dissatisfied.” To address the issue and restore customer loyalty, the complaint suggests that Chipotle would need to increase portion sizes, which would, in turn, raise the company’s cost of sales.
Social media backlash began to surface in July 2024 when former CEO Brian Niccol publicly acknowledged that inconsistent portions had become a problem at the chain, causing customers to feel “unhappy” with the portions, according to the lawsuit filed on Nov. 11. Niccol warned investors that Chipotle’s costs would rise as the company worked to correct the problem by offering more generous portions. The lawsuit alleges that this admission caused a noticeable drop in Chipotle’s stock price.
Executives have stated in previous earnings calls that despite raising prices, customers are still buying staple offerings, like its Al Pastor chicken and Braised Beef Barbacoa.
By October 2024, interim CEO Scott Boatwright confirmed during the company’s earnings call that the costs of sales had increased by 90 basis points, partially due to the company’s efforts to ensure “consistent and generous portions,” the complaint alleges. This further fueled concerns among investors, leading to an additional 9% drop in the company’s stock price. Subsequently, it faced a loss of approximately $6.5 billion in market value, Reuters reported.
The lawsuit claims that Chipotle’s failure to disclose these issues and their financial implications misled shareholders, potentially violating securities laws. As the case moves forward, it highlights the delicate balance companies must strike between customer satisfaction, operational costs, and shareholder trust.
Laurie Schalow, Chipotle’s chief corporate affairs officer, told Quartz in an email the chain “does not comment on litigation and will vigorously defend our industry leading real food.”
On Monday, as the lawsuit was filed in Santa Ana California federal court, Chipotle announced that Boatwright would officially take over as CEO of the company, removing his “interim” title, which he had held since Niccol stepped down to take the reins at Starbucks (SBUX).
The lawsuit is seeking unspecified damages for investors who purchased Chipotle’s stock and options between February and Oct. 2024.
