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Profiting from Food Scares: Lessons from Yum Brands

Wall Street Journal Markets •
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It is any restaurant chain’s nightmare: instead of making a run for the border, diners make one for the toilet. The latest food scare casualties include Taco Bell owner Yum Brands and salad chain Sweetgreen, both hit by cyclosporiasis.

Neither company is responsible for the outbreak, and Sweetgreen’s customers haven’t even been sickened, but the market reaction remains significant. Buying while an outbreak is still in the headlines sounds foolhardy, yet there are profitable precedents for investors.

Success often depends on whether the scare stems from a chain’s negligence. When management confronts the issue with swift action or new promotions—as seen with Yum Brands—it can present a unique opportunity. Even with Warren Buffett buying again, investors must weigh these risks against management's response.