By Ananya Mariam Rajesh, Waylon Cunningham
(Reuters) -McDonald's scrambled on Wednesday to contain the damage from an E. coli outbreak linked to Quarter Pounder burgers that has killed one person and sickened nearly 50 others, as it pulled the menu item from restaurants across a dozen states.
The outbreak has sickened people across the U.S. West and Midwest, with 10 hospitalized due to serious complications, according to the U.S. Centers for Disease Control and Prevention (CDC), which is investigating the outbreak. A McDonald’s (NYSE:MCD) spokesperson said the outbreak is limited to the United States.
"We fully expect to see more cases," said CDC spokesman Tom Skinner. "McDonald's has moved rather quickly to take action to, hopefully, prevent as many cases as possible."
Previous E. coli outbreaks at big U.S. fast-food chains have caused consumers to shun those chains for months. McDonald's USA President Joe Erlinger on Wednesday said the fast-food chain needs to rebuild trust with the public after it pulled the item off its menu at a fifth of its 14,000 U.S. restaurants.
The company pulled the Quarter Pounder from its menu at McDonald's locations in Colorado, Kansas, Utah and Wyoming, and in parts of Idaho, Iowa, Missouri, Montana, Nebraska, Nevada, New Mexico and Oklahoma.
The CDC and McDonald's are scrutinizing the Chicago-based company's supplies of slivered onions and beef patties as they try to determine the cause of the outbreak, the company said.
The U.S. Department of Agriculture said late on Wednesday that the onions used were the likely source of the illness, though one of its state partners is testing samples of the beef for E. coli.
The company's stock closed down 5.1% at $298.57 on Wednesday. Shares hit an intraday low of $290.88.
'VERY SERIOUS DISEASE'
The E. coli O157:H7 strain that led to the McDonald's outbreak is the same as a strain linked to a 1993 incident at Jack in the Box (NASDAQ:JACK) that killed four children. It can cause "very serious disease," especially for the elderly, children and people who are immunocompromised, said Shari Shea, director of food safety at the Association of Public Health Laboratories.
McDonald's suppliers test their products frequently and did so in the date range the CDC gave for the outbreak, and none of them identified this E. coli strain, company spokespeople said.
U.S. food safety attorney Bill Marler, who represented a victim in the Jack in the Box outbreak, said this is a relatively large and serious outbreak for which McDonald’s will face “a lot” of liability for the contamination.
“We’re still in the early stages of how McDonald’s is going to handle this,” he said. “But getting the supplier of the onions out – if they’re confident that’s the source of it – is going to be really important.”
Marler said that in the 1990s, he dealt almost exclusively with lawsuits involving contaminated beef, but in recent years E. coli outbreaks have been almost solely limited to produce contaminated through irrigation or flooding with feces from nearby cattle. E. coli is a natural pathogen in the guts of cows.
Jim Lewis, who was a franchisee in New York City for more than 30 years before exiting the system in 2019, said when E. coli became a major concern decades ago, McDonald’s was adamant about its protections for its beef supply chain.
“They were over the top to make sure it would never happen,” he said.
He said McDonald’s has historically been the “safest, strongest food chain in the world. So this is devastating to us internally.”
Analysts flagged the outbreak as a potential black eye for McDonald’s ahead of earnings.
"The worst-case scenario is if more people get sick or multiple ingredients or suppliers are impacted, which could be a longer-lasting issue that could also tarnish the brand," CFRA Research analyst Arun Sundaram said.
During an appearance on NBC's "Today" show on Wednesday, McDonald's USA chief Erlinger pointed to the company's steps to quickly pull the Quarter Pounder from its menu in areas where the outbreak occurred.
"Given the recent events of the past 24 hours, our priority is to reinforce the confidence of American consumers," he said.
In the past, two notable E. coli outbreaks - at Chipotle Mexican Grill (NYSE:CMG) in 2015 and Jack in the Box in 1993 - significantly hurt sales at those chains.
Chipotle took a year-and-a-half to stabilize, while Jack in the Box sales declined for four straight quarters, Raymond James analyst Brian Vaccaro said.
Chipotle shares fell nearly 50% during the 2015-2018 period when cases of norovirus infections were reported after the E. coli outbreak.
Analysts said McDonald's fourth-quarter sales could experience some pressure from the outbreak, but it was too early to say whether it would be worse than the previous two E. coli cases.