McDonald’s shares plummeted nearly 6% in premarket trading on Wednesday after a confirmed E. coli outbreak tied to the chain’s popular Quarter Pounder hamburgers led to one fatality and sickened 49 people across the United States. The outbreak, which the U.S. Centers for Disease Control (CDC) reported on Tuesday, has spread across 10 states, sending at least 10 individuals to the hospital.
Health Scare Adds to Financial Strain
The timing of the outbreak couldn’t be worse for McDonald’s, which has been grappling with declining growth. In July, the company posted its first quarterly sales decline in over three years, as inflation-weary consumers reacted to rising prices. Susannah Streeter, head of money and markets at Hargreaves Lansdown, noted that “this public health scare is the last thing McDonald’s needs” amid its ongoing challenges to boost sales.
Preliminary investigations have pointed to the use of slivered onions in Quarter Pounders as the potential source of the E. coli contamination. McDonald’s confirmed that the onions came from a single supplier servicing three distribution centers. To mitigate further risk, the company has temporarily removed slivered onions and beef patties for Quarter Pounders from restaurants in the affected areas.
Financial Impact of Past E. Coli Incidents
This outbreak is particularly concerning for McDonald’s given the lasting impact of past E. coli incidents on fast-food giants. Chipotle, for example, faced a severe E. coli outbreak in 2015 that took nearly a year and a half to stabilize its sales. Jack in the Box, after a devastating outbreak in 1993 that led to four deaths, saw sales declines for four consecutive quarters. The E. coli strain O157 linked to the McDonald’s outbreak is the same strain involved in the 1993 Jack in the Box incident.
Raymond James analyst Brian Vaccaro suggested that McDonald’s could experience a temporary drop in its fourth-quarter sales, but whether this incident will prove as damaging as previous cases remains unclear. Analysts, however, predict that McDonald’s rapid response could contain the outbreak’s damage.
McDonald’s Swift Response
To prevent further spread, McDonald’s has removed the suspected ingredients from its menu in affected areas and halted sales of Quarter Pounders in those locations. Analysts at JP Morgan commended McDonald’s for its quick identification of the contamination source and efforts to replenish supplies, expressing optimism that this localized issue is unlikely to significantly impact national or international sales.
BMO Capital Markets analyst Andrew Strelzik acknowledged that McDonald’s prompt response may help limit the fallout: “While it is early, historical precedent suggests comp[arable] sales pressures can trough quickly and prove transitory, assuming no recurrence.”
The E. coli scare comes as McDonald’s U.S. comparable sales were beginning to show improvement, driven by new value deals such as the $5 meal offerings aimed at price-conscious customers. Analysts and investors will closely monitor McDonald’s performance in the coming months to gauge the outbreak’s long-term impact on the chain’s recovery.
