The Cyclospora comeback

The Cyclospora outbreak kept many of us from our favorite slop bowls, taking a bite out of restaurant sales. Now, as those chains report earnings, investors are getting a clearer picture of just how much damage the food safety scare did—and how quickly customers are returning.

Yum! Brands posted mixed results today, beating earnings but missing revenue estimates. The company, which owns Taco Bell, KFC, and Pizza Hut, said the outbreak created a “meaningful near-term sales impact” after several Taco Bell locations were linked to parasite-ridden lettuce. Daily traffic at Taco Bells plunged by double digits following the news, a notable setback for the chain that has been driving much of Yum’s recent growth.

Fortunately, the slowdown appears to be easing. CEO Chris Turner said Taco Bell’s sales over the past four days have recovered roughly 50% from their lowest point after the outbreak. Overall, Taco Bell still posted 7% same-store sales growth during the quarter, followed by KFC’s 2%, while Pizza Hut slipped 1%. Shares of Yum rose 3.37% today.

Beyond Taco Bell

Yum wasn’t alone. Chipotle said that although it wasn’t directly implicated in the Cyclospora outbreak, the scare still shaved two percentage points off sales in the second half of July.

Even so, the burrito chain topped Wall Street’s expectations and raised its full-year same-store sales outlook from flat growth to low single-digit growth. The upbeat forecast was fueled by 100 new restaurant openings, 2.2% comparable-restaurant sales growth, and strong demand for menu additions like Chipotle Honey Chicken and Cilantro-Lime Sauce, which helped attract younger and lower-income diners. Shares popped 12.54%.

The comeback recipe

Looking ahead, both companies are taking very different paths to driving growth.

Yum is leaning on value. As it works to lure diners back after the outbreak, Taco Bell has rolled out a string of $1 promotions for items like Mexican Pizzas and Enchiritos (that normally cost several dollars more).

Chipotle, meanwhile, is betting on pricing power. Higher costs of beef, freight, and labor squeezed margins last quarter, prompting the company to rely on menu-price increases to offset inflation. That strategy has worked so far, but with consumers becoming increasingly price-sensitive, investors will be watching to see how much longer customers are willing to keep paying more.

Hey, at least we get some cheap ’ritos out of this whole debacle.—SY