Shares of Starbucks Corp zoomed 24 per cent to hit their biggest intraday gain on record, adding over $20 billion in market capitalization after the world's biggest multinational coffee chain announced that it has named Chipotle Mexican Grill Inc 's head, Brian Niccol, as its new chief executive officer (CEO)—just over a year after current boss Laxman Narasimhan took over the role.
Narasimhan, 57, is stepping down from his role as CEO and a member of the Starbucks board ‘’with immediate effect''. In a statement on August 13, the Seattle-based coffee giant said that Niccol will start in his new role on September 9, with Starbucks chief financial officer (CFO) Rachel Ruggeri serving as interim CEO until then.
On Tuesday, shares of Chipotle dropped by as much as 14 per cent, losing a little more than $10 billion in value, while Starbucks emerged as the top performer on the S&P 500. The management move flipped the fortunes of two of America’s largest restaurant chains.
Starbucks said in its statement that outgoing CEO Narasimhan, during his tenure, ‘’improved the Starbucks partner experience, drove significant innovation in brand's supply chain, and enhanced our store operations.''
Chipotle's Niccol will become only the sixth CEO at Starbucks over its 50-plus-year history, with founder and chairman emeritus Howard Schultz leading the company for 23 years in three separate stints. “I am excited to join Starbucks and grateful for the opportunity to help steward this incredible company alongside hundreds of thousands of devoted partners,” said Niccol.
The leadership shifts come as Starbucks, struggling with weak demand and disgruntled investors, pushes to turn around its business while contending with broad-based sales declines in its most recent financial results. The company also saw a bruising April earnings report.
Starbucks previously cited weakening consumer sentiment and tough market conditions in China as factors in its troubles. Before the CEO change, Starbucks shares plunged 20 per cent this year, and the chain posted two straight quarters of comparable sales declines.
The stores have been struggling to attract consumers, who are more hesitant to spend on pricey lattes. Starbucks recently tweaked its model to focus on mobile pickup and delivery orders rather than cafes set up for long visits.
In May, days after Starbucks cut its annual sales forecast, Schultz wrote on his LinkedIn account that its US operations were the "primary reason for its fall from grace" and that senior leaders needed to spend more time with workers. In late July, Starbucks reported a six per cent decline in US comparable transactions for its most recent quarter.
Starbucks has also been contending with pressure from activist investor Elliott Investment Management, which had built a $2-billion stake and sought ways to boost the share price. 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, along with Starboard Value, amassed stakes in the company. While Elliott hasn’t outlined specific asks of Starbucks, many of its targets have changed management after its involvement. The coffee giant has been under pressure from activist investors to improve its business and has suffered from increased competition and weakening demand in the US and China.
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Narasimhan took over the helm at Starbucks in March 2023, succeeding Schultz’s third stint as CEO. Schultz had retaken the reins a year earlier when Kevin Johnson retired. Schultz had led Starbucks’ expansion in the ’80s and ’90s before stepping down as CEO in 2000. He returned to the role eight years later and led the company until Johnson took over in 2017.
Narasimhan, a longtime PepsiCo executive, has also served as the CEO of Reckitt, a UK-based consumer health company. The Indian-origin executive was originally brought in as CEO in 2023 to engineer a "reinvention" of the leading coffee chain. Since then, the stock has continued to falter, losing nearly one-quarter of its value.
Under Narasimhan, Starbucks moved away from Schultz's tough stance on Workers United, the union seeking to organize its US workforce. In February, the chain announced talks that began a national contract negotiating process for the more than 400 unionized stores.
Niccol joined Chipotle from Taco Bell on March 5, 2018, and helped the company overcome salmonella and E.coli outbreaks at several outlets. Several analysts hailed the successful fast-food executive as the top public restaurant CEO in the US.
He is known for reviving the burrito chain as Chipotle's stock has more than tripled over the last five years, surging 773 per cent since Niccol took over as CEO. Starbucks shares are up just 35 per cent for the same period, while the S&P 500 has gained 99 per cent.
Investor Elliott welcomed Niccol’s appointment, which it called "a transformational step forward" for the company. "We look forward to continuing our engagement with the Board as it works toward realising Starbucks' full potential," Elliott said in a statement.
“We are thrilled to welcome Brian to Starbucks. His phenomenal career speaks for itself. Brian is a culture carrier with a wealth of experience and a proven track record of driving innovation and growth. Like all of us at Starbucks, he understands that a remarkable customer experience is rooted in an exceptional partner experience,” said Starbucks board chair Mellody Hobson as the company announced the leadership changes.
Niccol joined Chipotle at a time when the chain faced backlash following a string of food safety issues and activist pressure from the likes of Bill Ackman. The company has been a bright spot in the struggling restaurant industry, but it has outperformed competitors in recent quarters by bringing in diners even as others reel from a drop in demand.
Under Niccol, the Mexican chain started investing in store remodels, faster service times and a fresh marketing campaign. He also partnered with DoorDash to capture diners who prefer delivery and added new menu items embracing diet trends. Chipotle's revenue has nearly doubled, and profits have increased nearly sevenfold under Niccol's leadership.
‘’Since becoming Chipotle’s CEO in 2018, Niccol has transformed the international chain of fast-casual restaurants specialising in Mexican cuisine. His focus on people and culture, brand, menu innovation, operational excellence, and digital transformation has set new standards in the industry,'' said Starbucks in its statement.
Schultz said he has long admired Niccol. “I believe he is the leader Starbucks needs at a pivotal moment in its history. He has my respect and full support,” Schultz said in a statement.
Before joining Chipotle, Niccol was the CEO of Taco Bell for three years. He met success courting crowds with indulgent dishes such as Doritos Locos Tacos and A.M. Crunch Wraps. When he was named CEO of Chipotle, investors, including Ackman, welcomed the change.
With inputs from AFP, AP, Bloomberg, and Reuters
