Chipotle Mexican Grill, Inc.(NYSE:CMG) Might Have Avoided E.Coli Outbreak With Healthspace Data Systems Software

Chipotle Mexican Grill, Inc.(NYSE:CMG) Might Have Avoided E.Coli Outbreak With Healthspace Data Systems Software

• Could Health Inspection Automation company Healthspace Data Systems Ltd. (CNSX:HS)
  have protected Chipotle Mexican Grill, Inc. (NYSE:CMG) from outbreaks of NovoVirus and E. coli?

CEO Warwick Smith thinks so.

Chipotle Mexican Grill, Inc. saw its market cap creamed by 12 percent – or about $6 billion – after an outbreak of the dreaded E Coli virus in multiple states in the U.S. But the company could likely have sidestepped the entire problem if it had used the world’s only big data, Internet of Things software application for Restaurant Sanitary Health Compliance by Healthspace Data Systems Ltd.

The software, which is in use by 300 health inspection agencies across the Unites States, causes inspectors to input inspection data on standardized forms on iPads. From there, the data is agglomerated and analyzed by proprietary tools that alert management of patterns indicative of possible breaches of sanitary protocol.

The New York Post reported on Friday December 11th that the restaurant chain has apparently been making customers sick for months. “Chipotle sickened scores of customers in Washington, California and Minnesota as far back as last summer — well before the E. coli outbreak in October and November that spread to nine states,” the article said.

“That’s exactly the kind of situation our software is designed to prevent,” according to Healthspace CEO Warwick Smith. “That pattern of sickness and its causes would more than likely been identified in our solution, and steps taken to remedy deficiencies in Chipotle’s processes long before anybody got sick,” he said.

Here is the full transcript of the interview below:

James West: Warwick, thanks for joining us today.

Warwick Smith: Thanks for having us, James. Appreciate it.

James West: Okay, Warwick, Healthspace Data Systems creates software that helps big restaurant brands track problems within their organizations as it pertains to health. Recently, we saw Chipotle Restaurants suffer a $3 billion loss in valuation as a result of an e-coli outbreak in a Seattle location. Why don’t you give me an overview of how you see your software and your product helping events like what happened to Chipotle be averted in the future?

Warwick Smith: Yeah, certainly, James. There’s numerous examples of this type of thing happening and the way that we can help. The one thing I would say is, I think they’ve actually lost about $6 billion in market cap now, Chipotle.

So certainly our data and the data that we capture in terms of the cleanliness and the inspections of the restaurants is very valuable to chains like Chipotle or of that size. For background, Chipotle serves 1 million people a day in the US. So how our data helps, when inspectors go in and we collect that data, we can then provide it to large chains within 48-72 hours, so they will know exactly what’s going on in their restaurants within 48 to 72 hours. That gives them the opportunity to get in and fix these problems before they get big, which is obviously a tremendous help.

The other thing that is certainly worth mentioning to chains this size, and it’s something that we’re starting to reach out and do right now, is we offer the only restaurant inspection app on the market. So for companies the size of Chipotle, it would behoove them to license our app to use it internally, to do their own internal audits so that they know what’s going on on a consistent basis before the health inspectors come in, which allows them to be ahead of the curve and to make sure that everything they’re doing is up to standard, and people aren’t going to get sick.

It has worked very well in hotels and cruise ships, etcetera, and I think it would be something very worthwhile taking up for the major restaurant chains to look at as well. So, both the inspection app and, probably most importantly, the data that we sell, would be very valuable in these cases.

James West: Sure. Okay. So tell me exactly how would an inspector use your app to identify a problem in Chipotle which, if they had your system installed sort of enterprise-wide, how would management have been able to be alerted by your system?

Warwick Smith: Yeah, absolutely. So how our inspection data works is that this is all freedom of information, or under the sunshine laws. So anybody can go and get a copy of this data. The issue becomes the time. Typically you’re three to five weeks before you make a request till you get that data. So for the big chains, here’s typically what happens: someone comes in to inspect their restaurant, they are often using pen and paper for reference; there’s 4,500 environmental health departments in North America, around 3,000 of those are still using pen and paper.

So a gentleman comes in to inspect the restaurant, comes through, fills everything out in triplicate, they’ll do everything from testing the fry vat to seeing that the dishwasher is hot enough, etcetera, to see that the restaurant is clean, everything’s being cooked to the proper temperature, all of those things. They will then fill out a paper report in triplicate, they’ll leave a copy with the manager.

Often what happens is, the manager will look at this report; if it’s good, he immediately faxes it to head office. If there are issues, perhaps he gets busy or perhaps he forgets, but often it does not make its way to head office.

What then happens? The inspection hits the press three to five weeks later, the press gets ahold of it, they contact one of these major chains and say ‘Can you give me a comment on the issues at XYZ restaurant on Berard Street?’ and the major chain doesn’t know anything about it.

So how do we help? When we go in, we’re either using an enterprise solution or now, using this mobile app solution that is available on the Google Play store, it’s available on the Apple app store, they can go in, they can do the inspection, they hit Send, it goes up to the Cloud, we receive a copy of it, and then we, at 2:00 a.m., do what we call a ‘data dump’ and it sends it out to the people who are buying the data from us, so whether that be the major chains or an intermediary who’s buying it and then re-selling it to the major chain. They’re going to have that data within 48 to 72 hours.

Once they receive that data, they’ve got the opportunity to correct any issues that are out there, or deal with any problems, both ahead of the press, and two, if there is an issue that they can see and it’s come up in a couple of restaurants, they can then immediately contact the other restaurants around them and the restaurants that are within that chain, to correct these problems before they get larger than they need to be.

James West: Okay. So now, has Chipotle spoken to you about your software?

Warwick Smith: We have not spoken to Chipotle yet, but we are reaching out to them.

James West: Okay, so there’s really no other automated solution that provides instantaneous data transmission enterprise-wide, anywhere in the world?

Warwick Smith: No, not that we’re aware of; certainly not in North America. We are the only people with a mobile application at this point. The gentleman who put it together spent over $1 million building the app; he had worked in the business for 15 years, so they had a very good understanding of both from an environmental health department standpoint, different forms that each city and each state uses, so they load it very quickly, just again being downloaded from the Apple store or from the Google Play store. So if you’re in Toronto and you sign up with your user name and you download it, you’re downloading Toronto forms. If you’re in Tennessee, same idea; you log in with your login, you’ll download Tennessee’s forms.

So we are the only people who have that all built out at this point, and certainly it’s a tremendous help on the data side for these large chain restaurants.

James West: Sure, okay. So Chipotle Mexican Grill, as of the end of last year, had 1,595 restaurants. How much would it cost them to use your system enterprise-wide, and how much of a hit, or how much of an addition, to your bottom line would that represent?

Warwick Smith: It would probably be a significant addition to our bottom line, although for Chipotle, it would be a blip on their radar, as they are obviously a much larger company than we are. I won’t give you exact figures at this point, because we need to reach out to them, and ideally have a conversation with them. But you know, they’re a multi-billion-dollar company, and certainly would be able to afford something like this quite easily.

James West: Sure. Okay. So how many large restaurant chains like Chipotle, use your software at this point?

Warwick Smith: You know what, James? We have just put this software in the Apple app store and it’s just gone into the Google Play Store literally in the past week, so we are just starting to have these conversations now. So we are getting in touch with all of these major chains and looking to sell them, or at least looking to license them, our software, or at least make them aware of the ability to purchase the data that will tell them what’s going on after the restaurant inspections have been done. So it’s something that we’re just implementing right now. So the Chipotle story is obviously a very unfortunate story, although it is a timely one for us, for them to help understand how these things occur.

I will make one note of something that happened in 2008: there was an e-coli breakout in a peanut processing plant down in the States, and what ended up happening is that Congress ended up passing a bill that essentially said agricultural facilities need to be inspected the same way that restaurants are inspected. And they passed a bill, and they gave a grant to 42 different states, which accepted the grant. The caveat to that was that the information had to be collected digitally and submitted digitally to the government. We are, again, the only app that can do that at this moment, and those all have to be – it’s use it or lose it grants, so the states have got until March to spend that grant money or they have to give it back to the government, which clearly states do not like to do very much.

James West: So basically, they have to give it to you!

Warwick Smith: Well, you know, it’s about $2 million to our bottom line, $2 million in revenue to us that can come to us by March. We’ve already signed up 7 of the states, 7 of the 42, but we’re obviously looking to get the other ones as well. So it gives you an idea that when these things happen, they’re taken very seriously, both by the chains but by all the levels of government as well; they’re on the lookout for these types of things. So that’s where I think we can build a real nice niche for ourselves, by getting these chains and intermediaries that sell for these chains, the ability to capture this data and get it to them in a timely process.

James West: Wow. Okay, Warwick, let’s leave it there for now. That’s a very illuminating bit of information about the Chipotle unfortunate events. Thank you very much for joining us today.

Warwick Smith: Thank you, James. I certainly appreciate the talk.