Cyclosporiasis outbreak linked to Taco Bell may not have major impact

The cyclosporiasis outbreak linked to lettuce at some Taco Bell locations may not have a significant long-term impact on the chain and other restaurant companies, according to analysts.

The outbreak has currently affected more than 1,600 people across five states, according to the Centers for Disease Control and Prevention. The infection resembles a serious stomach bug and often begins showing up two to three weeks after people become infected by the parasite, according to the CDC. No deaths have been reported.

On Thursday, the agency said its investigation into the source linked the outbreak to shredded iceberg lettuce served at Taco Bell locations in Indiana, Kentucky, Michigan, Ohio and West Virginia. The U.S. Food and Drug Administration is working with the supplier to determine if the lettuce was sent elsewhere, as well.

Taco Bell’s parent company, Yum Brands, saw its stock sink nearly 7% over the past five days as the company grappled with the health scare. Other food companies that sell fresh lettuce also saw their shares drop, like salad chain Sweetgreen, which plunged nearly 13% this week, and fast casual chain Cava, which sank more than 3%. Shares of Sweetgreen and Cava rose more than 17% and about 2% on Friday, respectively, due to apparent relief that the CDC did not identify their ingredients as potential sources of cyclosporiasis.

While Taco Bell or other restaurant chains may take a temporary sales hit as headlines about the outbreak swirl, particularly in the states most affected by it, analysts said any dips in revenue or stock prices likely will not be prolonged. Even so, it remains to be seen whether the CDC identifies any other restaurant chains as possible sources of the outbreak.

According to reports, the affected lettuce at Taco Bell may be traced back to supplier Taylor Farms, which distributes the product to many restaurant chains and sells directly in most grocery stores. Other media reports noted the company was preparing to issue a recall of ingredients on Friday.

Taylor Farms, the same company linked to the McDonald’s E. Coli outbreak in 2024, said in a Friday statement that it has removed all iceberg lettuce sourced from central Mexico. The company added that none of its branded salads or kits are associated with the outbreak.

“While the FDA traceback is indicating a specific independent farm, which represents less than 1% of the U.S.’s iceberg lettuce supply, as the potential source of the outbreak, we have removed all iceberg lettuce from the region indefinitely,” the company said.

Taco Bell said in a Thursday statement that the fast food chain is actively working to “voluntarily remove potentially impacted lettuce from a supplier in select states.”

“The affected ingredient from our supplier is being indefinitely removed from our supply chain nationwide and will be replaced within 24 hours in select states,” the company said.

Sweetgreen and other restaurant companies issued statements this week saying that they did not believe their ingredients were affected. The salad chain said it does not use iceberg lettuce on its menu.

“From the outset of the investigation, we have been in close contact with our suppliers to determine whether any ingredients in our supply chain have been identified as part of the investigation. To date, none have been,” the company said.

Chipotle, which did not see as much stock movement this week, said in a Friday statement that shredded iceberg lettuce is not served at its locations, and it does not believe its ingredients are associated with the outbreak.

TD Cowen analyst Andrew Charles told CNBC he believes the impact of the cyclosporiasis outbreak will be contained to a one-quarter risk for the company and culminate in a quick recovery. He said he expects that arc to look similar to how quickly both McDonald’s and Wendy’s recovered from separate E. Coli outbreaks in 2024 and 2022, respectively.

“Social media just leads to a lot more short-term memory loss,” Charles said. “We saw both times a quarter or less of an impact. Here, it’s a similar setup too.”

He added that the outbreak is also limited to toppings at Taco Bell rather than the meat itself, which is a core offering and would likely have a larger impact on consumer behavior. The Covid-19 pandemic has also lessened the impact of food safety concerns on the broader industry over the past few years, he added.

“We’ll have to wait and see from here,” Charles said.

Analysts at Evercore ISI wrote in a Friday note that they believe the outbreak will transform from a vendor issue to a supplier issue as the spotlight moves away from Taco Bell to Taylor Farms instead.

“Our guess is that over the coming weeks this food safety issue fades from the headlines and, to the extent it lingers, attaches more to the supplier than to Taco Bell specifically,” the analysts wrote.

While lower demand in the impacted Midwest states will likely last longer than in other areas of the U.S., the Evercore analysts said Taco Bell could return to positive same-store sales growth in a matter of weeks, just as McDonald’s did within roughly six weeks in 2024. That’s especially as the company has recently been “firing on all cylinders” with strong sales numbers, they added.

“The historical playbook for food-safety scares that carry no confirmed brand-level link and no fatalities, points to a one-to-two-quarter demand air-pocket and a stock that tends to recover within two quarters,” the analysts wrote.

It’s a lesson in marketing and brand loyalty for Taco Bell and other restaurants, too, according to Gerry Chiaro, an associate professor of marketing at Northwestern University. The company will need to regain customers’ trust, just as other restaurants like McDonald’s, Wendy’s and Chipotle have had to in the past after health scares.

“They have to be accountable for it. They can’t blame anybody, even though in a way, they’re the victim of the policies and processes and the food safety measures of their supplier,” Chiaro told CNBC. “But you can’t put the blame on it because the customer sees Taco Bell as the brand, and Taco Bell’s the one they engage with.”

Because health scares like the cyclosporiasis outbreak happen often and are par for the course for any restaurant serving fresh food, Chiaro said the playbook is becoming more common. And because Taco Bell has already issued a statement and pulled its infected ingredients, Chiaro said it’s likely to follow the recovery trend of other companies

“A very clear, accountable, transparent communication, a recommitment to our health safety and our food safety processes – it can make them better,” he said.