In 2018, Chipotle was in turmoil, grappling with multiple food poisoning outbreaks that had sickened 1,100 people. Desperate for a turnaround, the company enlisted Taco Bell CEO Brian Niccol. As Chipotle’s chairman and CEO, Niccol reinvigorated the brand by ramping up marketing and product innovation, adding a loyalty program, and improving store operations. He also introduced employee benefits, such as a program to cover employees’ college tuition costs at select schools. Under his leadership, Chipotle’s revenue nearly doubled.
On Tuesday, Niccol answered a new call, this time from Starbucks. The Seattle-based coffee giant appointed Niccol as its new chairman and CEO, banking on his expertise to revive sagging sales and re-establish Starbucks as a premium destination. “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 stated.
News of Niccol’s appointment sent Starbucks shares soaring by 24.5%, reclaiming all their losses for the year. Yet, Niccol faces significant challenges at Starbucks, which boasts 38,000 stores worldwide, compared to Chipotle’s mostly U.S.-based 3,500 restaurants. Niccol’s task is to lure inflation-weary U.S. customers back into stores for its high-priced 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 holds shares in both Starbucks and Chipotle.
In the U.S., Starbucks has struggled to balance the demand for mobile orders and quicker service with its traditional role as an upscale cafe where customers can unwind. Tengler noted that long wait times and a flood of mobile orders have eroded the in-store experience, and Niccol will need a plan to reverse this trend.
Starbucks, like other major brands such as McDonald’s, is also dealing with U.S. consumers increasingly seeking value and deals. Niccol must convince customers that a medium iced coffee, priced at over $5 in Manhattan, remains worth the cost.
In China, Starbucks’ second-largest market with 6,500 stores, customers are turning to lower-priced competitors. Additionally, Starbucks is facing boycotts in the Middle East and some European countries due to the Israel-Hamas conflict.
Niccol replaces Laxman Narasimhan, who is stepping down immediately after more than a year as CEO. Niccol will officially step into the role on Sept. 9, with CFO Rachel Ruggeri serving as interim CEO until then.
Narasimhan succeeded longtime Starbucks leader Howard Schultz in March 2023, but both investors and the board quickly grew disillusioned with Narasimhan, a former PepsiCo executive with limited retail experience. Despite training as a barista and working monthly in stores, he failed to connect with the company’s needs.
Starbucks’ revenue dropped 2% in the first quarter of this year, marking the first sales decline since the end of 2020. Schultz criticized leadership in a LinkedIn post, urging them to spend more time in stores and focus on coffee drinks.
Revenue fell again the next quarter. A new summer drink featuring boba-like raspberry “pearls” spiked U.S. sales, but the company had to scale back marketing after running out of ingredients. Equity analyst Andy Barish from Jefferies wrote that investors felt Narasimhan was not effectively tackling Starbucks’ issues, including complex store operations and ineffective marketing. New products, like a line of energy drinks, also failed to impress.
While Chipotle’s same-store sales surged 11% from April to June, Starbucks saw a 2% drop in the same period. Chipotle managed to buck the trend of reduced consumer spending with popular limited-time offerings and a focus on value. When customers aired grievances on social media about smaller portions, Niccol assured that workers at the 10% of stores identified would be retrained.
Elliott Investment Management, a significant stakeholder in Starbucks, initiated discussions about leadership changes with the board two months ago. The firm called Niccol’s appointment a “transformational step forward,” looking forward to working with the board to realize Starbucks’ full potential.
At Taco Bell, where Niccol served as chief marketing officer before becoming CEO, he emphasized menu innovation and introduced breakfast items. He also upgraded cooking equipment and dining rooms, and rolled out mobile ordering.
Starbucks Chairwoman Mellody Hobson, who will transition to lead independent director once Niccol becomes chairman, believes Niccol can apply the same playbook at Starbucks. Schultz also expressed his support, stating, “I believe he is the leader Starbucks needs at a pivotal moment in its history. He has my respect and full support.”
The impact of Niccol’s arrival on Starbucks’ ongoing unionization efforts remains unclear. Schultz had opposed unionization, but under Narasimhan, the company shifted its stance, aiming to restart labor talks and reach contract agreements this year. Since 2021, workers at over 475 U.S. Starbucks locations have voted to unionize.
Chipotle opposed unionization under Niccol, agreeing last year to pay $240,000 to former employees after the U.S. government determined it had illegally closed a Maine store that voted to unionize. Only one other Chipotle, located in Michigan, has voted to unionize.
Chipotle shares, which have risen over 20% this year, fell by 7.5% on Tuesday following news of Niccol’s departure. The company announced that Scott Boatwright, its chief operating officer, will serve as interim CEO.
