Starbucks on Tuesday named Chipotle Mexican Grill head Brian Niccol as its new CEO. Starbucks successfully poaching the fast-food executive known for reviving the Chipotle to lead a turnaround. This astounding move sent the Starbucks’ shares up 24%.
Brian Niccol replaces Laxman Narasimhan, whose tenure only lasted a year-and-a-half after he was originally brought in as CEO in March 2023 to engineer a “reinvention” of the world’s biggest coffee chain. Since then, the stock has continued to falter, losing nearly one-quarter of its value.
Challenges for Starbucks’ new CEO Brian Niccol
Starbucks CEO change will make Niccol inherits several challenges at the coffee giant, which has been under pressure for many reasons. Activist investor Elliott Investment Management pressure to improve business, increased competition and weakening demand in the U.S. and China.
Niccol’s appointment is a coup for Starbucks, as Chipotle’s annual sales have surged since he joined in 2018, and the stock has more than tripled over the last five years.
“This is a significant victory for Starbucks. Niccol has earned the respect and confidence of the investment community and will be given the much-needed leeway to make investments and time to turn around Starbucks,” BTIG analyst Peter Saleh said.
Pressured Starbucks
Starbucks had been under pressure from Elliott, which had built a $2 billion stake. The hedge fund had suggested Starbucks expand its board and make Elliott executive Jesse Cohn a director, though it was not demanding a CEO change.
Elliott on Tuesday said that Niccol’s appointment was “a transformational step forward” for the company.
Laxman Narasimhan is stepping down from his role as ceo and as a member of the Starbucks board with immediate effect. During his tenure, he improved the Starbucks partner experience, drove significant innovation in our supply chain, and enhanced our store operations.
Starbucks strategic move
Starbucks recently tweaked its model to focus on mobile pickup and delivery orders rather than cafes set up for long visits.
Craig Garthwaite, a professor at Northwestern’s Kellogg School of Management, said Niccol “has taken an upscale fast food restaurant chain and improved it before, and that is what Starbucks is today, a fast-food restaurant. For Niccol this could be the ultimate challenge in fixing the perception that’s weighing on the company and the business problems.”
Fall in U.S. operation
In May, days after Starbucks cut its annual sales forecast, Schultz wrote on his LinkedIn account that its U.S. operations were the “primary reason for its fall from grace,” and that senior leaders need to spend more time with workers.
Starbucks in late July reported a 6% decline in U.S. comparable transactions for its most recent quarter.
Under Narasimhan, Starbucks moved away from Schultz’s tough stance on Workers United, the union seeking to organize its U.S. workforce. In February, the chain announced talks that began a national contract negotiating process for the more than 400 unionized stores.
Brian Niccol joins Starbucks as CEO
Niccol, who will start on Sept. 9, will become only the sixth CEO at Starbucks over its 50-plus-year history, with founder Schultz leading the company for 23 years in three separate stints.
CFO Rachel Ruggeri will serve as Starbucks’ interim CEO until Niccol starts.
“(Niccol) is a fixer and a doer and an executor,” said Thomas Hayes, chairman at Great Hill Capital.
Starbucks stock update
Starbucks shares had a record one-day percentage jump, hitting a more than five-month high. Share price of Starbucks closed today at $95.90. Chipotle stock closed down 7.5% on Tuesday.
