Starbucks appointed Brian Niccol as its chairman and CEO Tuesday morning, effective Sept. 9.
The coffee chain faces pressure from two activist investors who are pushing for it to make changes to boost its stock price.
Niccol leaves the top post at Chipotle and replaces Laxman Narasimhan, who is stepping down immediately after being handpicked by Howard Schultz as a successor in March 2023.
- CFO Rachel Ruggeri will serve as interim CEO and Mellody Hobson, Starbucks' board chair, will become lead independent director.
Starbucks faced challenges from activist Starboard Value, which this month joined Elliot Investment Management.
- Both hedge funds are pushing for changes at the company.
Under Niccol's leadership, Chipotle's stock price has increased by almost $20 per share over the last year — the kind of bump activists are seeking at Starbucks.
In pre-market trading, Chipotle's stock is down 8%, while Starbucks is up more than 14%.
Laxman Narasimhan is stepping down as CEO of Starbucks, just 17 months after he assumed the role in March 2023, the coffee giant announced on Tuesday.
Chipotle CEO Brian Niccol is set to take over in September, with the current chief financial officer, Rachel Ruggeri, serving as interim CEO until then.
Narasimhan's time as the head of the company had been tainted by falling sales, union clashes, and activist investors.
"While not surprising that Laxman Narasimhan is out as Starbucks's CEO given activist investors and the company's steep sales reversal over the past 9 months, his replacement will send ripples throughout the industry," the William Blair analyst Sharon Zackfia wrote in a note.
Here's what went wrong for Starbucks under Narasimhan's leadership.
Falling sales
Same-store sales — a key metric in the restaurant industry — have been falling at Starbucks. In late July, it posted a 3% drop in global comparable store sales in the quarter after having posted a 10% increase a year ago.
This includes a drop in sales in its home market. Comparable store sales in the US were down 2% in the quarter after a 7% increase in the same quarter the year before.
Comparable store sales in China, a key growth market, plunged 14% in the quarter year over year, after a huge 46% growth in the same period the prior year.
Starbucks has given numerous reasons for its poor performance. Boycotts related to the Middle East have seen some customers avoid the brand, which Narasimhan told investors last month was "driven by widely discussed misperceptions about our brand." He said that there was a challenging consumer environment in the US, while in China, sales had been hit by cautious consumer spending and increased competition.
Starbucks has looked at several ways to boost sales, including selling boba-inspired drinks and introducing bundling. The Stifel restaurant analyst Chris O'Cull said in a recent note that Starbucks' 6% decline in the number of comparable US transactions, which was only partially offset by 3% increase in average ticket size, was "alarming" despite these efforts to increase sales.
Activist investors
Narasimhan confirmed in July that the activist investor Elliott Management had taken a stake in Starbucks.
"Our conversations to date have been constructive," he said at the time.
The Wall Street Journal reported on Friday that Starboard Value had also taken a stake in the company.
People familiar with the matter told the Journal that Starboard Value wanted Starbucks to take action to boost its stock price after falling throughout 2024.
Union clashes
Starbucks baristas have been organizing over the past few years. The Financial Times reported that the Workers United union represented staff at more than 470 US stores.
Starbucks has gotten into clashes with the union during Narasimhan's tenure as head of the company.
Last summer, the union accused the chain of "hypocritical treatment of LGBTQIA+ workers." It told Business Insider that Starbucks had refused to let workers at some stores decorate for Pride and had taken down Pride flags. Starbucks said that there had been "no change" to company policies regarding Pride Month celebrations.
Starbucks and the union then sued each other in October after the union used the company's name and logo in a social-media post declaring "solidarity" with Palestine.
Its former CEO keeps attacking the company
Howard Schultz, a leader synonymous with Starbucks' rise, won't pipe down.
In a LinkedIn post in May, the longtime former CEO said that Starbucks needed to focus on customer experience and fix its stores and mobile app to reverse its "fall from grace."
Schultz, who remains the company's chairman emeritus, added that the chain needed to "overhaul" its strategy and reinforce its "premium position."
"Through it all, focus on being experiential, not transactional," Schultz wrote.
Earlier on in the year, he said in a letter to the chain's management that it needed to return to its core values and rediscover its "soul."
In Starbucks' press release addressing the leadership change, Schultz didn't acknowledge Narasimhan's time at the company. Instead, he said of Niccol: "I believe he is the leader Starbucks needs at a pivotal moment in its history."
In 2018, 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 the company’s 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.
However, Niccol faces far larger and deeper challenges at Starbucks, which has 38,000 stores worldwide compared with 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 the demand for mobile orders and faster service with a place where other customers can find a relaxing cafe environment. 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.
But Starbucks is facing challenges on multiple fronts in its drive for growth.
In China, Starbucks’ second-largest market with 6,500 stores, customers are increasingly opting for coffee from lower-priced rivals. In the Middle East 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. Chief Financial Officer Rachel Ruggeri be the interim CEO until then.
After succeeding Howard Schultz, the longtime Starbucks leader and chairman emeritus in March 2023, investors and the company’s board quickly soured on Narasimhan, a longtime PepsiCo executive.
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 to turn around flagging sales.
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%.
And when some customers began complaining on social media about what they thought were smaller portions at Chipotle, Niccol acted, saying that the company would retrain workers at the 10% of stores that were found 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 and introduced 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.
“Brian is a culture carrier who brings a wealth of experience and a proven track record of driving innovation and growth,” Hobson said in a statement. “Like all of us at Starbucks, he understands that a remarkable customer experience is rooted in an exceptional partner experience.”
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 prepared statement.
Chipotle shares that have risen more than 20% this year fell 8% Tuesday on word of Niccol’s departure.
Chipotle said Tuesday that Scott Boatwright, the company’s chief operating officer, will become its interim CEO.