Topline
A cyclospora parasite outbreak possibly tied to lettuce used by Taco Bell and many others appeared to deliver a blow to the chain’s customer traffic—significantly more than was originally reported—as the stock of its parent company, Yum! Brands, fell drastically from a five-month-high earlier this month.
A Taco Bell restaurant in Ohio.
Getty Images for Taco Bell
Key Facts
Taco Bell’s customer visits on July 17 were roughly 31% below the chain’s average Friday traffic level for the year to date, according to Placer.ai, which tracks location activity through mobile devices.
The hit was initially reported to be about 19%, but Placer.ai says early coverage underreported the impact to the restaurant.
The broader fast-food category posted only a 1.9% traffic decline that same day, meaning Taco Bell’s drop was approximately 16 times worse than its peers, the data shows.
Shares of Yum! Brands, which is also the parent company of KFC, have fallen about 10% since July 10, when news reports first connected the chain to an ongoing outbreak of an “explosive diarrhea parasite,” erasing roughly $4.3 billion in market value.
Over 1,600 cyclosporiasis cases have been attributed by the Centers for Disease Control and Prevention to Taco Bell restaurants in five states—Indiana, Kentucky, Michigan, Ohio and West Virginia.
The stock plummet came days after Yum! Brands hit a five-month high of $167.49 per share on July 7.
WHAT TO WATCH FOR
Yum! Brands is set to release its earnings on July 30.
KEY BACKGROUND
More than 7,400 people (most of whom live in Michigan) are confirmed or suspected to have been sickened with cyclosporiasis, an illness caused by the cyclospora parasite, in the last two months, and federal investigators scrambled for weeks to discover the source until identifying Taco Bell’s lettuce supplier as the possible origin. The Food and Drug Administration said more than 1,600 of those sickened in the outbreak reported eating at Taco Bell restaurants, and blamed Taylor Farms’ shredded lettuce. Shortly after, however, the agency backtracked and said a test of the brand’s lettuce for the cyclospora parasite had returned a false positive. The agency didn’t completely clear Taylor Farms, and the supply chain evidence remains, but no produce samples have returned a positive test for the parasite to date. Cyclospora outbreaks are notoriously challenging to trace because the parasite is difficult to detect—finding it has been likened to “a needle in a haystack”—and the CDC says it expects cases to rise through the end of August.
SURPRISING FACT
Yum! Brands, Sweetgreen and major McDonald’s franchisee Arcos Dorados warned investors about cyclosporiasis in recent Securities and Exchange Commission filings. Each company explicitly named the illness as a material business risk and warned fresh, raw leafy greens handled at its restaurants were at risk for the parasite.