Starbucks has appointed Brian Niccol, the head of Chipotle Mexican Grill, as its new CEO in a significant management shakeup aimed at addressing pressure from activist investor Elliott Investment Management. Niccol replaces Laxman Narasimhan, who took over as CEO in April last year after being recruited from Lysol maker Reckitt to lead a “reinvention” of the world’s largest coffee chain.
Despite efforts to revitalize the brand, Starbucks’ stock has struggled, losing approximately 20% of its value over the past five years, while the S&P 500 gained more than 80% during the same period. In July, the company missed sales expectations due to weakening demand in both the United States and China.
However, on Tuesday, Starbucks’ stock surged by 21% in early trading, erasing all losses for the year and marking its best day ever. Conversely, Chipotle’s shares fell by 9%.
Elliott, a significant shareholder, has been pressuring Starbucks to improve its performance and stock price, suggesting the expansion of its board and enhancement of governance. This proposal was reportedly an attempt to allow Narasimhan to retain his position as CEO. When asked by CNBC whether Elliott was consulted about the leadership change, Starbucks Board Chair Mellody Hobson stated that it had not been.
We look forward to engaging with all of our shareholders about this new development, Hobson said. The status of negotiations with Elliott remains unclear. Elliott Management did not respond to Reuters’ request for comment. The activist hedge fund was reportedly seeking to add Jesse Cohn, an equity and managing partner, to the Starbucks board.
In May, following Starbucks’ decision to cut its annual sales forecast, former CEO Howard Schultz criticized the company on LinkedIn, citing U.S. operations as the “primary reason for its fall from grace” and urging senior leaders to spend more time with workers.
A Fixer and a Doer
Niccol faces several challenges at Starbucks, which has recently shifted its focus to mobile pickup and delivery orders rather than traditional café experiences. In China, the company is dealing with increased competition from rivals offering discounts, while its Middle Eastern locations have faced some pro-Palestinian boycotts amid the Israel-Hamas conflict.
“Niccol is going to turn the company around. It will be a bit of a heavy lift for the first few quarters, but he has proven what he can do at Chipotle,” said Thomas Hayes, chairman at Great Hill Capital. “This guy is a fixer, a doer, and an executor.”
Niccol, who joined Chipotle in 2018 from Taco Bell, helped more than double the company’s annual sales to nearly $10 billion. In its most recent quarter, Chipotle’s results surpassed Wall Street estimates due to strong demand.
Starbucks announced that Niccol will assume his new role on September 9, with CFO Rachel Ruggeri serving as interim CEO until then. Chipotle’s board has appointed Scott Boatwright, Chief Operating Officer, as interim CEO.
