Chipotle has been unable to escape the viral backlash on the restaurant chainâ€s inconsistent and skimpy portion sizes. Shareholders are now suing the company in a class-action lawsuit alleging the chain was dismissive of the customer outrage. When Chipotle addressed and tried to rectify inconsistent portions, it cost them profitability and sunk share prices.
Shareholders said in a complaint filed Monday that Chipotle “understated†diners†dissatisfaction with “highly inconsistent (and in the view of some customers, lacking) portion sizes†in its risk disclosure in its 2023 annual report and 2024 first-quarter report.Â
Customer grievances on social media escalated in the spring and summer months, according to the complaint, including one particular video from content creator Keith Lee, whose review of Chipotle—which included complaints of meager amounts of chicken in his burrito bowl—received 19.4 million views on TikTok.
The complaint cited Fortuneâ€s coverage of Chipotle customers†discontent following a May interview with CEO Brian Niccol, who was named as a defendant in the suit alongside John Hartung, chief financial and administrative officer. Niccol told Fortune portion sizes had not gotten smaller and touted the companyâ€s generous portion sizes saying, “itâ€s kind of who we are.†Niccol left the restaurant chain to become the chief executive of Starbucks in September, and interim CEO Scott Boatwright replaced him as the companyâ€s permanent head, Chipotle announced the same day the lawsuit was filed.
The complaint claimed Niccolâ€s statements were “materially false and misleading when made because portions had in fact gotten smaller in many cases.â€
Niccolâ€s comments followed an outpouring of concern on social media that Chipotle was skimping on meat and rice, which sparked the viral trend of diners filming Chipotle staff making their orders to pressure them to pile on toppings. A Wells Fargo analysis in June validated customer complaints, showing that among 75 burrito bowls, there was vast variability in portion sizes, particularly for online orders, with the heaviest burrito bowl weighing 87% more than the lightest bowl.
“We donâ€t comment on litigation and will vigorously defend our industry leading real food,†chief corporate affairs officer Laurie Schalow told Fortune in an emailed statement.
The cost of beefing up portions
Niccol addressed customer concerns over portion sizes in a July 24 second-quarter earnings call, where he said more than 10% of Chipotleâ€s 3,500 locations had “outlier portion scores†and needed to retrain staff to make portions more consistent.
“There was never a directive to provide less to our customers,†Niccol said. “Generous portion is a core brand equity of Chipotle. It always has been, and it always will be.â€
Chipotleâ€s recommitment to unsparing bowl sizes came at a price to the company. The company reported lower-than-expected revenue in last monthâ€s third-quarter earnings due to expensive ingredients, as well as rectifying inconsistent portion sizes.
“The benefit of last yearâ€s menu price increase was more than offset by inflation across several items, most notably avocados and dairy, as well as higher usage as we focused on ensuring consistent and generous portions,†chief financial officer Adam Rymer said in the earnings call.
Though foot traffic and same-store sales increased over the quarter, investors were less than impressed, and Chipotleâ€s stock fell nearly 8% following the earnings report. Ultimately, because Chipotle only later acknowledged the problem with its portions—and fixing the inconsistencies came at meaningful expense to the company and its shareholders—the chainâ€s true failure was the speed at which it disclosed its awareness of and addressed the problem, the lawsuit claims.
“As a result of Defendants†wrongful acts and omissions, and the precipitous decline in the market value of the Companyâ€s common shares,†the complaint said. “Plaintiff and other Class members have suffered significant losses and damages.â€
The class-action lawsuit is seeking damages for those who bought or traded Chipotle stock or options between Feb. 8, 2024 and Oct. 29, 2024. The plaintiff claims hundreds or thousands of shareholders may be eligible.
