Starbucks CEO Replaced by Brian Niccol, a Fixer Who Revived Chipotle When the Chain Was in Distress

AP

13:30 JST, August 14, 2024

In 2018, when Chipotle was reeling from multiple food poisoning outbreaks that had sickened 1,100 people, the company called Taco Bell CEO Brian Niccol to turn things around.

As Chipotle’s chairman and CEO, Niccol beefed up marketing and product innovation, added a loyalty program and improved store operations. He also instituted employee benefits, like a program that pays employees’ college tuition costs at certain schools.

Chipotle’s revenue since then has nearly doubled.

On Tuesday, Niccol answered another call, this time from Starbucks. The Seattle coffee giant named Niccol as its new chairman and CEO, hoping he can revive fading sales and re-establish Starbucks as a destination where customers are willing to pay premium prices.

“I am excited to join Starbucks and grateful for the opportunity to help steward this incredible company, alongside hundreds of thousands of devoted partners,” Niccol said.

Starbucks shares jumped 24.5% Tuesday on the news, recapturing all of their losses for the year.

However, Niccol faces far larger and deeper challenges at Starbucks, which has 38,000 stores worldwide compared to Chipotle’s largely U.S.-based chain of 3,500 restaurants. Niccol has to figure out how to get inflation-weary U.S. customers back into stores for its pricey drinks.

“I will pay $9 for a burrito. I’m not sure I’m going to pay $9 for a cup of Venti shaken espresso,” said Nancy Tengler, CEO of Laffer Tengler Investments, which owns shares in Starbucks and Chipotle.

In the U.S., Starbucks has struggled to balance demand for mobile orders and faster service with its more traditional role as an upscale cafe where customers can gather and relax. Tengler said long wait times and a deluge of mobile orders have damaged the in-store experience at Starbucks, and Niccol will have to develop a plan to flip that around.

Starbucks — along with other big brands like McDonald’s — is also confronting U.S. consumers who are increasingly looking for value and deals. Niccol will have to convince drinkers that a medium Starbucks iced coffee — now more than $5 in Manhattan — is worth paying for.

In China, Starbucks’ second-largest market with 6,500 stores, customers are increasingly opting for coffee from lower-priced rivals. And in the Middle East and some countries in Europe, Starbucks is seeing boycotts related to the Israel-Hamas war.

Niccol replaces Laxman Narasimhan, who is stepping down immediately after spending a little more than a year in Starbucks’ top job. Niccol will become Starbucks’ chairman and CEO on Sept. 9. Starbucks Chief Financial Officer Rachel Ruggeri be the interim CEO until then.

Narasimhan succeeded Howard Schultz, the longtime Starbucks leader and chairman emeritus, in March 2023. But investors and the company’s board quickly soured on the longtime PepsiCo executive, who trained as a barista and worked monthly in Starbucks stores but had little retail experience.

Starbucks’ revenue dropped 2% in the first three months of this year, the first quarterly sales decline for the company since the end of 2020. The decline prompted a rebuke from Schultz, who wrote in a LinkedIn post this spring that company leaders should spend more time in stores and focus on coffee drinks.

Revenue fell again the next quarter. A new summer drink with boba-like raspberry “pearls” drove strong U.S. sales, but the company had to pull back on marketing after it ran out of ingredients.

Andy Barish, an equity analyst at the investment bank Jefferies, said investors didn’t feel Narasimhan was effectively addressing Starbucks’ issues, including increasingly complicated operations for store employees and ineffective marketing. New products — like a line of energy drinks — were also lackluster, Barish wrote Tuesday.

Starbucks’ same-store sales — or sales at stores open at least a year — fell 2% between April and June. During the same period, same-store sales at Chipotle jumped 11%.

Chipotle bucked the slowdown in consumer spending by offering popular limited-time items like Chicken al Pastor. The company also emphasized value. When some customers began complaining on social media that they were getting smaller portions, Niccol said the company would retrain workers at the 10% of Chipotle stores that were making meals too small.

Elliott Investment Management, an activist firm with a significant stake in Starbucks, said it began talking about a change in leadership with Starbucks’ board two months ago. In a statement Tuesday, the firm called Niccol’s appointment a “transformational step forward.”

“We welcome the appointment of Brian Niccol and we look forward to continuing our engagement with the board as it works toward the realization of Starbucks’ full potential,” Elliott Managing Partner Jesse Cohn and Partner Marc Steinberg said in a joint statement.

At Taco Bell, where Niccol started as chief marketing officer in 2011 and eventually transitioned to CEO, Niccol focused on menu innovation, introducing breakfast at the Mexican food chain. He upgraded restaurant cooking equipment and dining rooms and also introduced mobile ordering.

Starbucks Chairwoman Mellody Hobson — who will transition to lead independent director once Niccol becomes chairman — said Niccol can use the same playbook to transform Starbucks. Schultz also 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 prepared statement.

It’s not immediately clear how Niccol’s arrival will impact the ongoing unionization effort at Starbucks. Schultz opposed unionization, but under Narasimhan the company pivoted, saying it would restart labor talks with the aim of reaching contract agreements this year. Workers at more than 475 U.S. Starbucks stores have voted to unionize since 2021.

Chipotle opposed unionization under Niccol. The company agreed to pay $240,000 to former employees last year after the U.S. government found it violated the law by closing a Maine store that voted to unionize. Only one other Chipotle, in Michigan, has voted to form a union.

Chipotle shares, which have risen more than 20% this year, fell 7.5% Tuesday on word of Niccol’s departure.

Chipotle said Tuesday that Scott Boatwright, the company’s chief operating officer, will become its interim CEO.