Shrinkpotle

Posted on Dec 10, 2024 by

Shrinkflation was a hot topic during this year’s presidential election. The trend of offering less product for the same price began during the pandemic and was magnified as costs rose due to the ensuing inflation.

I recently wrote about a Subway customer who sued the chain for putting less meat on her steak-and-cheese sandwich compared to what was advertised. Now Chipotle appears to be in the crosshairs.

A class action lawsuit has been filed against Chipotle Mexican Grill, Inc. and two of its senior executives on behalf of its shareholders for allegedly violating the Securities Exchange Act of 1934. The suit, which was filed in the U.S. District Court for the Central District of California, accuses Chipotle of deceiving investors by concealing how many of its restaurants were skimping on portions, forcing the chain to spend more on ingredients and hurting its stock price.

The plaintiffs claim that after new reports surfaced accusing the chain of reduced and “highly inconsistent” portion sizes provided to customers at its more than 3,600 restaurants, Chipotle repeatedly misrepresented that there “have been no changes in our portion sizes.”

Complaints continued to mount, however, and posts about Chipotle’s “skimpgate” went viral this spring. The suit asserts that pivotal moment occurred when Keith Lee, a famous food influencer and previously collaborator with Chipotle, slammed the restaurant’s chicken portions in a May TikTok review. Then, in June, a Wells Fargo analyst even ordered 75 burrito bowls to test portion sizes and discovered that the consistency of the portions varied widely.

On July 24, Chipotle held an earnings call, which is a conference call where a publicly traded company’s management team discusses its financial performance with investors, analysts and journalists. Then-CEO Brian Niccol admitted reduced portions and inconsistencies were a problem.

“First, there was never a directive to provide less to our customers,” Niccol insisted. “With that said, getting the feedback caused us to re-look at our execution across our entire system.” He promised the chain would make “generous portions” more consistent. To correct the inconsistent portion sizes, though, Chipotle would experience a higher cost of sales. In response, the chain’s stock fell 3.8% over the course of the next two days.

On October 29, Chipotle revealed a 30.6% increase in its cost of sales due to the company being “focused on ensuring consistent and generous portions.” The next day, Business Insider reported that “Profit margins for the chain suffered last quarter because of a concerted effort to provide ‘consistent and generous portions’ in every order.” Chipotle’s stock then fell 7.9%, wiping out about $6.5 billion of market value.

“As a result of Defendants’ wrongful acts and omissions, and the precipitous decline in the market value of the Company’s common shares, Plaintiff and other Class members have suffered significant losses and damages,” the lawsuit asserts. When asked about the suit, Laurie Schalow, Chipotle’s chief corporate affairs officer, said, “We don’t comment on litigation and will vigorously defend our industry leading real food.”

Niccol is named in the lawsuit, along with CFO Jack Hartung. Since Niccol took over as CEO in 2018, Chipotle’s stock rose by more than 800%. In September, Niccol resigned to become CEO of Starbucks. Scott Boatwright was named as the new CEO on the same day the lawsuit was filed.

Anyone who purchased or sold Chipotle stock from February 8 to October 29, 2024, is eligible to participate in the class action lawsuit. Investors have until January 10, 2025, to join the case.

The suit is seeking unspecified damages, but plaintiffs are purportedly asking for the whole enchilada.



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Reg P. Wydeven

Elder Law and Estate Planning Attorney at McCarty Law LLP
Hoping to follow in his father’s footsteps from a young age, Reg’s practice primarily consists of advising individuals on estate planning, estate settlement and elder law matters. As Reg represents clients in matters like guardianship proceedings and long-term care admissions, he feels grateful to be able to offer families thorough legal help in their time of need.
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