Chipotle Sued Over Portion Control Deception: Shareholders Seek Damages

Chipotle’s Portion Control Problems Spark Shareholder Lawsuit

Concealing the Truth

Chipotle Mexican Grill is facing a proposed class-action lawsuit from shareholders who claim the company hid the truth about its restaurants skimping on portions, resulting in increased ingredient costs and a subsequent drop in stock price.

Customer Backlash

The lawsuit, filed in Santa Ana, California federal court, alleges that Chipotle failed to disclose growing customer dissatisfaction with inconsistent portion sizes for its burritos and rice bowls. It wasn’t until customers took to social media platforms like TikTok to express their dismay that the company acknowledged the issue, emphasizing its commitment to “generous portions” at its over 3,600 restaurants.

Financial Fallout

The damage control efforts came at a cost, hurting margins and causing Chipotle’s stock price to plummet after the company reported its second- and third-quarter results. The stock price decline on October 30 wiped out a staggering $6.5 billion in market value.

Seeking Damages

The lawsuit seeks unspecified damages for purchasers of Chipotle stock and options between February 8 and October 29, 2024. The company has yet to respond to requests for comment.

Executive Shake-Up

Interestingly, the lawsuit was filed just hours after Chipotle removed the “interim” tag from CEO Scott Boatwright’s job title. Boatwright took the reins after Brian Niccol stepped down as chief executive in August to become CEO of Starbucks. During Niccol’s nearly 6-1/2-year tenure, Chipotle’s share price rose more than eightfold.

Defendants Named

Niccol and former Chief Financial Officer Jack Hartung are also named as defendants in the lawsuit. Hartung became Chipotle’s president and chief strategy officer on October 1.

The Case Against Chipotle

The case is Stradford v. Chipotle Mexican Grill Inc et al, U.S. District Court, Central District of California, No. 24-02459. As the legal battle unfolds, investors will be watching closely to see how this portion control controversy impacts Chipotle’s bottom line.

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