By Jonathan Stempel
(Reuters) – Chipotle Mexican Grill (CMG) was sued by shareholders on Monday for hiding how many of its restaurants cut back on portions, forcing the chain to spend more on ingredients and hurting its stock price.
In a proposed class action filed in federal court in Santa Ana, California, shareholders said Chipotle failed to disclose growing customer dissatisfaction with inconsistent portion sizes for its burritos and rice bowls.
They said the truth came to light when customers voiced their displeasure on TikTok and other social media, prompting Chipotle to reemphasize what CEO Scott Boatwright and his predecessor Brian Niccol called “generous portions” at its more than 3,600 restaurants.
The costs to repair the damage have hit margins, causing Chipotle’s stock price to fall after the company reported second- and third-quarter results, the complaint said. The Oct. 30 drop wiped out about $6.5 billion in market value.
The lawsuit seeks unspecified damages for purchasers of Chipotle stock and options from February 8 to October 29, 2024.
Chipotle did not immediately respond to requests for comment.
The lawsuit was filed a few hours after the Newport Beach, California-based company removed the “interim” tag from Boatwright’s job title.
Niccol stepped down as CEO in August to take the same job at Starbucks.
Chipotle’s stock price rose more than eightfold in the nearly six and a half years Niccol was at the helm.
Niccol and former Chief Financial Officer Jack Hartung are also defendants in Monday’s lawsuit. Hartung became president and chief strategy officer of Chipotle on October 1.
The case is Stradford v. Chipotle Mexican Grill Inc et al, US District Court, Central District of California, No. 24-02459.
(Reporting by Jonathan Stempel in New York; Editing by Marguerita Choy)
