Chipotle Faces Lawsuit Over Portion Size Issues

Shareholders have filed a lawsuit against Chipotle Mexican Grill, alleging that the company concealed the fact that many of its restaurants do not provide consistent portion sizes. The class action, filed in a federal court in Santa Ana, California, claims that Chipotle did not inform its investors about increasing customer dissatisfaction arising from variable meal quantities in burritos and rice bowls.

The complaint states that customers have expressed their dissatisfaction on social media platforms such as TikTok, prompting the company to reaffirm its commitment to the "generous portion" standard emphasized by CEO Scott Boatwright and former CEO Brian Niccol. The lawsuit indicates that the additional costs incurred to address the issue have negatively impacted the company’s profit margins.

This financial pressure became evident when Chipotle announced its second and third quarter financial results. Subsequently, the company experienced a significant drop in its stock price on October 30, 2024, with about $6.5 billion in market value wiped out.

The lawsuit seeks an unspecified amount of damages on behalf of individuals who purchased Chipotle stock and options between February 8 and October 29, 2024. The legal action was initiated on the day Boatwright was confirmed as CEO permanently, following Niccol's departure in August to become CEO of Starbucks (NASDAQ: SBUX).

Chipotle's stock had shown substantial growth during Niccol's tenure of over six and a half years. Niccol and former Chief Financial Officer Jack Hartung, who became President and Chief Strategy Officer on October 1, are named as defendants in the lawsuit.

Chipotle has not yet responded to the lawsuit, which is filed under the name Stradford v. Chipotle Mexican Grill Inc (NYSE: CMG) et al, in the U.S. District Court for the Central District of California, case number 24-02459.