As Starbucks (SBUX) deals with disappointing sales and pressure from activist investors, the coffee chain is shaking up its leadership by replacing CEO Laxman Narasimhan with Brian Niccol, the current head of Chipotle (CMG). Niccol will take on his new role as Starbucks CEO and chairman next month as Narasimhan steps down effective immediately, announced the company today (Aug. 13).
“Our board believes he will be a transformative leader for our company, our people, and everyone we serve around the world,” said Mellody Hobson, Starbucks board chair, in a statement. Hobson is set to become the company’s lead independent director, while chief financial officer Rachel Ruggeri will serve as interim CEO until Niccol joins on Sept. 9. Starbucks stock was up by more than 20 percent this morning in response to the news, while Chipotle’s shares fell by 11 percent.
Narasimhan has been in his role since March of last year, in a tenure marked by lagging sales in both the U.S. and China amid increased competition and falling customer traffic. During the most recent fiscal quarter, Starbucks reported a net income of $1.05 billion, down 7.6 percent from last year.
The executive has also been forced to contend with demands brought on by activist investors like Elliot Investment Management, which built up a significant stake in the company in July and has urged for the coffee chain to increase shareholder value. “We view today’s announcement as a transformational step forward for the company,” said Elliot Investment managing partner Jesse Cohn and partner Marc Steinberg in a statement, adding that “we welcome the appointment of Brian Niccol.” Another activist investor, Starboard Value, also reportedly took a stake in Starbucks earlier this month.
Chipotle, too, experienced activist investor pressure in 2016 when Bill Ackman’s Pershing Square bought up large amounts of its shares. Two years later, Ackman pushed to replace Chipotle’s cofounder and then CEO Steve Ells with Niccol. Since then, Niccol has successfully steered Chipotle through additional challenges, including an E. coli outbreak that impacted several of its restaurants.
Niccol, who formerly headed Taco Bell and served in leadership roles at Pizza Hut, was credited for raising wages and expanding benefits at Chipotle. His tenure has also nearly doubled the restaurant chain’s revenue, increased its profits by sevenfold and saw its stock price rise by nearly 800 percent. “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 in a statement. Scott Boatwright, Chipotle’s chief operating officer, will serve as its interim CEO upon Niccol’s departure.
Narasimhan, meanwhile, has in recent months faced public disapproval from Howard Schultz, the founder of Starbucks who headed the company between 1987 and 2000 and during two subsequent CEO shifts. Schultz, who helped recruit Laxman, criticized the company’s executives in a May LinkedIn post following a lackluster earnings call. Senior leadership must “restore trust and increase performance” across the organization and should spend more time working in its cafes themselves, he said at the time.
Schultz appears to be more content with Niccol’s appointment, praising the incoming CEO’s “leadership impact” at Chipotle and track record in delivering shareholder value in a statement. “I believe he is the leader Starbucks needs at a pivotal moment in its history,” said Schultz.
