By Jonathan Stempel
(Reuters) – Chipotle Mexican Grill (CMG) was sued by shareholders on Monday for hiding how many of its restaurants skimped on portions, forcing the chain to spend more on ingredients and hurt its stock price.
In a proposed class action lawsuit filed in federal court in Santa Ana, California, shareholders said Chipotle failed to disclose growing discontent among customers with inconsistent portion sizes for its burritos and rice bowls.
They said the truth came to light when customers expressed their dismay on TikTok and other social media, prompting Chipotle to reemphasize what CEO Scott Boatwright and his predecessor Brian Niccol called “generous portions” in their more of 3,600 restaurants.
Costs to repair the damage hurt margins, causing Chipotle’s stock price to fall after the company reported second- and third-quarter results, according to the complaint. The October 30 crash wiped out about $6.5 billion in market value.
The lawsuit seeks unspecified damages for buyers 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” label from Boatwright’s job title.
Niccol resigned as CEO in August to take the same position 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 CFO Jack Hartung are also accused 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, United States District Court, Central District of California, No. 24-02459.
(Reporting by Jonathan Stempel in New York; Editing by Marguerita Choy)