This Warren Buffett quote describes Chipotle's problems perfectly

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Chipotle hires former critic to improve food safety

Investors of Chipotle Mexican Grill(NYSE: CMG) aren't having very much fun right now. The burrito chain is suffering from a massive sales decline, driven by multiple health scandals that have made customers think twice about frequenting the company's restaurants. Comparable sales plunged nearly 30% during the first quarter of 2016, leading to Chipotle's first quarterly loss as a public company.

The optimists among Chipotle investors are betting on seeing the company quickly fix its problems and return to growth. But customer loyalty is something that's hard to win and easy to lose. Warren Buffett, famed value investor and CEO of Berkshire Hathaway, has dispensed countless nuggets of wisdom over the decades. One particular quotation from the Oracle of Omaha describes the pickle that Chipotle finds itself in perfectly:

"It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently."

Can free burritos make customers forget about the health scares?

Chipotle has been wildly successful since its founding more than 20 years ago for a lot of reasons. The menu is simple, the restaurants are generally pleasant, and the food is relatively inexpensive. The most important factor, though, has been the company's brand.

Chipotle has successfully convinced consumers that its food is simply better. Its ingredients are fresh, natural, and held to strict standards. In 2015, the company stopped serving pork entirely for a time because of its inability to find suppliers that met its animal welfare standards, a move that only reinforced the company's message. Likewise, GMOs are a big no-no at Chipotle.

Chipotle closings due to E. coli:

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Chipotle closings because of E.coli
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Chipotle closings because of E.coli
Passers-by walk near a closed Chipotle restaurant on Monday, Dec. 7, 2015, in the Cleveland Circle neighborhood of Boston. Chipotle said late Monday that it closed the restaurant after several students at Boston College, including members of the menâs basketball team, reported âgastrointestinal symptomsâ after eating at the chain. The school said it was working with local health officials to determine the cause of the illness. (AP Photo/Steven Senne)
A sign is posted on the door to a Chipotle restaurant, Monday, Dec. 7, 2015, in the Cleveland Circle neighborhood of Boston. Chipotle said late Monday that it closed the restaurant after several students at Boston College, including members of the menâs basketball team, reported âgastrointestinal symptomsâ after eating at the chain. The school said it was working with local health officials to determine the cause of the illness. (AP Photo/Steven Senne)
A customer leaves a Chipotle restaurant in Seattle as the company started to reopen the outlets closed because of an E. coli outbreak in the Pacific Northwest, Wednesday, Nov. 11, 2015. (AP Photo/Donna Blankinship)
Customers leave a Chipotle restaurant with food in Portland, Ore., Wednesday, Nov. 11, 2015. Chipotle started reopening its restaurants in the Pacific Northwest on Wednesday after an E. coli outbreak sickened about 45 people, a high-profile example of foodborne illnesses that are more common than the public realizes, health experts say. Forty-three outposts of the Mexican food chain in Washington state and the Portland, Oregon, area were closed at the end of October because of the outbreak that hospitalized more than a dozen people. The first restaurants opened for lunch Wednesday. (AP Photo/Don Ryan)
A customer enjoys lunch at a Chipotle restaurant in Portland, Ore., Wednesday, Nov. 11, 2015. Chipotle started reopening its restaurants in the Pacific Northwest on Wednesday after an E. coli outbreak sickened about 45 people, a high-profile example of foodborne illnesses that are more common than the public realizes, health experts say. Forty-three outposts of the Mexican food chain in Washington state and the Portland, Oregon, area were closed at the end of October because of the outbreak that hospitalized more than a dozen people. The first restaurants opened for lunch Wednesday. (AP Photo/Don Ryan)
Rosanna Fleming enters a Chipotle restaurant for lunch as another customer enters a second door in the background in Portland, Ore., Wednesday, Nov. 11, 2015. Chipotle started reopening its restaurants in the Pacific Northwest on Wednesday after an E. coli outbreak sickened about 45 people, a high-profile example of foodborne illnesses that are more common than the public realizes, health experts say. Forty-three outposts of the Mexican food chain in Washington state and the Portland, Oregon, area were closed at the end of October because of the outbreak that hospitalized more than a dozen people. The first restaurants opened for lunch Wednesday. (AP Photo/Don Ryan)
Workers clean inside a still-closed Chipotle restaurant Monday, Nov. 9, 2015, in Seattle. Health officials in Washington and Oregon have said that more than three dozen people have gotten sick with E. coli in an outbreak linked to Chipotle restaurants in the two states. More than 40 Chipotle restaurants remain closed in Washington state and the Portland area while authorities search for the cause. (AP Photo/Elaine Thompson)
FILE - In this Nov. 9, 2015, file photo, pedestrians walk past a still-closed Chipotle restaurant in Seattle. An outbreak of E. coli that originated in the Pacific Northwest has spread south and east and has now infected people in six states. New cases have been reported in California, New York and Ohio, the Centers for Disease Control and Prevention said Friday, Nov. 20, 2015. (AP Photo/Elaine Thompson, File)
A worker sits at a counter inside a still-closed Chipotle restaurant Monday, Nov. 9, 2015, in Seattle. Health officials in Washington and Oregon have said that more than three dozen people have gotten sick with E. coli in an outbreak linked to Chipotle restaurants in the two states. More than 40 Chipotle restaurants remain closed in Washington state and the Portland area while authorities search for the cause. (AP Photo/Elaine Thompson)
Workers clean inside a still-closed Chipotle restaurant Monday, Nov. 9, 2015, in Seattle. Health officials in Washington and Oregon have said that more than three dozen people have gotten sick with E. coli in an outbreak linked to Chipotle restaurants in the two states. More than 40 Chipotle restaurants remain closed in Washington state and the Portland area while authorities search for the cause. (AP Photo/Elaine Thompson)
A closed Chipotle restaurant is shown, Tuesday, Nov. 3, 2015, in Federal Way, Wash. Chipotle closed 43 of its Pacific Northwest locations after the chain's third foodborne illness this year sickened about two dozen people. (AP Photo/Ted S. Warren)
A pedestrian, right, walks past a closed Chipotle restaurant Monday, Nov. 2, 2015, in Seattle. An E. coli outbreak linked to Chipotle restaurants in Washington state and Oregon has sickened nearly two dozen people in the third outbreak of foodborne illness at the popular chain this year. Cases of the bacterial illness were traced to six of the fast-casual Mexican food restaurants, but the company voluntarily closed down 43 of its locations in the two states as a precaution. (AP Photo/Elaine Thompson)
A sign posted on the door of a Chipotle restaurant in Portland, Ore. reads that the location is "temporarily closed due to a supply chain issue," on Monday, Nov. 2, 2015. An E. coli outbreak linked to Chipotle restaurants in Washington state and Oregon has sickened nearly two dozen people in the third outbreak of food borne illness at the popular chain this year. (AP Photo/Don Ryan)
FILE - In this Nov. 2, 2015, file photo, a pedestrian walks past a closed Chipotle restaurant in Seattle. Washington state health officials say they have found no source for the E. coli outbreak related to Chipotle and the chain's Pacific Northwest restaurants could reopen later this week. Washington state epidemiologist Dr. Scott Lindquist says all the tests of food from Chipotle stores in Washington and Oregon came back negative for E. coli. (AP Photo/Elaine Thompson, File)
A woman talks on the phone as she stands in the kitchen area of a closed Chipotle restaurant, Monday, Nov. 2, 2015, in Seattle. An E. coli outbreak linked to Chipotle restaurants in Washington state and Oregon has sickened nearly two dozen people in the third outbreak of foodborne illness at the popular chain this year. Cases of the bacterial illness were traced to six of the fast-casual Mexican food restaurants, but the company voluntarily closed down 43 of its locations in the two states as a precaution. (AP Photo/Elaine Thompson)
Signage hangs from a closed Chipotle restaurant in Portland, Ore., Monday, Nov. 2, 2015. Chipotle voluntarily closed down 43 of its locations in Washington and the Portland area as a precaution after an E. coli outbreak linked to six of its restaurants in the two states has sickened nearly two dozen people. (AP Photo/Don Ryan)
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In terms of quality, there's no question that Chipotle's food is superior compared with many of its competitors. Chipotle strategy is aligned with the general trend away from processed foods, which has helped propel the company's sales and profits higher in recent years. Chipotle didn't need to do much, other than continue to offer the same simple menu, to attract and retain customers.

Chipotle's reputation is its most important competitive advantage. It's what makes Chipotle stand out from the countless other options presented to consumers each day. The worst thing that could have happened was for an event to bring Chipotle's reputation into question.

In July of last year, five people in Washington state contracted E. coli from eating at Chipotle. If the problems had stopped there, I doubt the company would have been affected all that much. But a series of additional health crises over the following months pointed to a systemic flaw in Chipotle's safety procedures. In August, hundreds of customers and employees in California contracted norovirus. In Minnesota, 64 people were sickened by salmonella. More E. coli cases later popped up in multiple states spread across the country. And norovirus popped up again, this time in Massachusetts.

For all of these outbreaks to happen at roughly the same time required some serious bad luck in addition to the weaknesses in the company's procedures. Another factor is Chipotle's supply chain, which is complicated by the company's efforts to source ingredients locally when possible. Chipotle has taken steps to reduce the risk of future outbreaks, but the damage to its reputation has been done.

Chipotle's challenge is not simply winning back customers. The company has to pry customers away from its competitors, which have collectively absorbed the business fleeing the burrito chain. Chipotle has handed out tens of millions of coupons for free burritos in an effort to get customers to come back, and it's starting a loyalty program, at least temporarily. That's despite the fact that, less than a year ago, Mark Crumpacker, Chipotle's chief creative and development officer, stated in a conference call that the company doesn't believe that loyalty programs work:

"We've studied this in-depth, and we don't believe the general supposition that loyalty will make less frequent customers more frequent. We've studied that and just simply don't believe that to be true."

Times have changed, of course, and the company can no longer count on organic customer loyalty to drive sales.

I don't doubt that Chipotle will eventually recover, but I think it's going to take a lot longer than the most optimistic Chipotle bulls assume. Customer loyalty is a fickle thing, and it's much easier to drive people away than it is to bring them back. All the free burritos in the world won't rebuild the trust that Chipotle's health crises destroyed.

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RELATED: Warren Buffett through the years

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Warren Buffett speaks to the media during a press conference Monday, June 26, 2006 in New York. Buffet, the chairman of Berkshire Hathaway, recently announced his intention of giving 10 million shares of his company to charitable organizations, the majority going to the Bill and Melinda Gates Foundation. (AP Photo/Seth Wenig)
NEW YORK, UNITED STATES: California Governor Arnold Schwarzenegger (L) cofers with billionaire investor Warren Buffet (R) during a meeting with Wall Street investors at the Ritz Carlton hotel February 25, 2004 in New York City. AFP PHOTO/POOL/Kathy WILLENS (Photo credit should read KATHY WILLENS/AFP/Getty Images)
Investor Warren Buffet participates in the Treasury Conference on U.S. Capital Markets Competitiveness, Tuesday, March 13, 2007, at Georgetown University in Washington. (AP Photo/Gerald Herbert)
CLEVELAND - MARCH 25: Philanthropist Warren Buffet (C) wears a LeBron James Witness tee-shirt as he cheers for the Cleveland Cavaliers during a game against the Denver Nuggets March 25, 2007 at The Quicken Loans Arena in Cleveland, Ohio. NOTE TO USER: User expressly acknowledges and agrees that, by downloading and/or using this Photograph, user is consenting to the terms and conditions of the Getty Images License Agreement. Mandatory Copyright Notice: Copyright 2007 NBAE (Photo by David Liam Kyle/NBAE via Getty Images)
** FILE ** In this May 21, 2008 file photo, U.S. Billionaire investor Warren Buffet speaks during a news conference in Madrid. Buffett's Berkshire Hathaway Inc. is investing at least $5 billion in Goldman Sachs Group Inc., Goldman announced Tuesday, Sept. 23, 2008. (AP Photo/Paul White, file)
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FILE - In this May 2, 2009 file photo, Warren Buffett, CEO of Berkshire Hathaway, right, waves to shareholders prior to the annual Berkshire Hathaway shareholders meeting in Omaha, Neb. Warren Buffet's Berkshire Hathaway said Tuesday, Nov. 3, 2009, it has agreed to buy Burlington Northern Santa Fe in a deal valuing the railroad at $34 billion.(AP Photo/Nati Harnik, file)
Warren Buffet heads to lunch after a morning session at the Sun Valley Inn for the 2011 Allen and Co. Sun Valley Conference, Thursday, July 7, 2011, in Sun Valley, Idaho. (AP Photo/Julie Jacobson)
Warren Buffett is interviewed in the White House Briefing Room in Washington, Monday, July 18, 2011, following his meeting with President Barack Obama. Obama met with members of the Giving Pledge including, Buffett and Bill and Melinda Gates, and others to receive and update on the program. (AP Photo/Pablo Martinez Monsivais)
Billionaire investor Warren Buffet at the Allen & Company Sun Valley Conference in Sun Valley, Idaho, Friday, July 13, 2012. (AP Photo/Paul Sakuma)
Warren Buffett, chairman of Berkshire Hathaway Inc., right, speaks to David Rubenstein, co-founder and managing director of the Carlyle Group, during the Economic Club of Washington dinner event in Washington, D.C., U.S., on Tuesday, June 5, 2012. Buffett said he doesn't expect another U.S. recession unless Europe's crisis spreads. Photographer: Andrew Harrer/Bloomberg via Getty Images
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