Todd Heisler/The New York Times

Left Holding the Bag in the Land of Fast Food

By ANDREW MARTIN
Published: February 20, 2007

FRANCHISE owners lie awake at night thinking about customers like Stephen Minnis.
Mr. Minnis, a 27-year-old from Limerick, Pa., ate at a Taco Bell in nearby Gilbertsville on Nov. 25, a few weeks after he got out of the Air Force. He said the chicken chalupa he ate nearly killed him.

“I was vomiting, had diarrhea, I was in so much pain,” said Mr. Minnis, who lost 30 pounds during the ordeal, which he said lasted nearly a month. “I thought I was going to die.”

Mr. Minnis’s illness was one of more than 400 confirmed or suspected cases of E. coli poisoning linked to Taco Bell restaurants in the Northeast. About the same time, in a case that received far less attention, more than 80 people became sick after eating food contaminated with the same dangerous form of the E. coli bacteria at Taco John’s franchises in Iowa and Minnesota.

Bell is an enormous operation, with 5,800 restaurants nationwide, and its corporate image is honed by millions of dollars in television ads and marketing campaigns. But Taco Bell and chains like it are hardly monolithic. At their core they are a collection of much smaller businesses, franchises owned by individuals.

And while most of the focus after food-poisoning outbreaks is on the corporate parent, the hardship can be worse for those franchise owners. What can seem like a promising investment can turn sour quickly in a crisis.

“They stand to lose the most,” said Paul A. Argenti, a professor of corporate communications at the Tuck School of Business at Dartmouth College. “It’s unfortunate. They are suffering because of the problems that developed at the corporate level.” Both the Taco Bell and Taco John’s outbreaks were attributed by federal agencies to tainted lettuce in the supply chain.

Yum Brands, which operates KFC, Pizza Hut and other chains in addition to Taco Bell, said last week that sales at all of its United States restaurants open for a year or more were down 2 percent in the fourth quarter, a period in which operating profits for its United States restaurants fell $19 million, compared with the same period a year earlier. Sales at Taco Bell were down 5 percent, with the third week of December, the middle of the outbreak, being the low point. The company said Taco Bell sales had begun to recover.

While the financial hit to the company was relatively mild, some individual restaurants suffered more serious blows. Taco Bell declined to provide specifics, other than to say that sales declines were more serious in the Northeast, where the outbreak occurred. Of the 90 stores that were temporarily closed, all but four were individually owned franchises.

Similarly, sales at Taco John’s in the Midwest fell after the outbreak, and the three owner-operated restaurants that served the tainted food had declines into the double digits, said Brian Dixon, vice president for marketing. “It was one of those unfortunate perfect storms,” he said. “The public and the media were sensitized after the Taco Bell incident.”

After such a crisis, being a franchise owner is both a blessing and a curse. While the franchise has the marketing clout and financial strength of the parent company to back it up, it is also largely dependent on the parent company’s public relations and advertising to lure customers back.

On top of all that, franchise owners may be liable for serving contaminated food. Some Taco Bell and Taco John’s franchises have been named in lawsuits on behalf of customers who were sickened.

“From a strict liability standpoint, the franchisee is on the hook,” said William Marler, a Seattle lawyer who is handling several of the cases, including Mr. Minnis’s.

No wonder then that Taco Bell and Taco John’s franchise owners have refused to talk about the E. coli outbreaks and their aftermaths. Attempts to contact the owners of the franchises involved in the outbreaks were unsuccessful. Company spokesmen said they were focused on restoring their businesses and didn’t want any more negative publicity.

It is too soon to say how the franchise owners for Taco Bell and Taco John’s weathered the E. coli outbreaks. Both parent companies were widely credited with responding quickly to the crisis. But as in other cases of food-borne illness, financial settlements seem likely.