On Tuesday, Starbucks announced that Brian Niccol, the current chief executive officer of Chipotle, has been appointed as the coffee giant’s new chairman and CEO. He will replace the current Starbucks CEO, Laxman Narasimhan, who has been with the company for just over a year.
“We are thrilled to welcome Brian to Starbucks,” Mellody Hobson, Starbucks board chair, said in a written statement. “His phenomenal career speaks for itself. Brian is a culture carrier who brings a wealth of experience and a proven track record of driving innovation and growth. Like all of us at Starbucks, he understands that a remarkable customer experience is rooted in an exceptional partner experience.”
She continued: “Our board believes he will be a transformative leader for our company, our people, and everyone we serve around the world.”
When Niccol took over Chipotle in 2018, the company was struggling as it faced a dip in customers, as well as a $25 million federal fine related to several foodborne illness outbreaks. However, he turned it around. Niccol expanded the Chipotle menu, improved its rewards program and, as a result, the company’s stock is up more than 800% since. Given some of Starbucks’ recent financial setbacks, it could be the company’s board is looking for a similar fix.
The news of Niccol’s new role comes as Starbucks has struggled some during Narasimhan’s tenure. Its stock price has tumbled 21% during the 17 months Narasimhan has been in charge, while in-store traffic has also declined. In late July, the company reported its second-straight quarter of sales declines.
Howard Schultz, the founder of Starbucks and chairman emeritus, handpicked Narasimhan as his successor, however Schultz has since been vocally critical of the direction the company has taken under Narasimhan’s leadership. In May, for instance, Schultz wrote an open letter on LinkedIn — which notably did not specifically mention Narasimhan by name — about why, in his estimation, the company “significantly missed shareholder expectations” during the prior quarter.
“Over the past five days, I have been asked by people inside and outside the company for my thoughts on what should be done,” Schultz said. “I have emphasized that the company’s fix needs to begin at home: U.S. operations are the primary reason for the company’s fall from grace. The stores require a maniacal focus on the customer experience, through the eyes of a merchant. The answer does not lie in data, but in the stores.”
Schultz essentially encouraged the company to return to the basics: coffee-based drinks and customer service.
“The go-to-market strategy needs to be overhauled and elevated with coffee-forward innovation that inspires partners, and creates differentiation in the marketplace, reinforcing the company’s premium position,” he wrote. “Through it all, focus on being experiential, not transactional.”
(In a statement to CNBC at the time, a Starbucks representative said: “The challenges and opportunities he highlights are the ones we are focused on. And like Howard, we are confident in Starbucks long-term success”).
The pressure on Narasimhan — who previously worked as the chief executive of Reckitt, which owns brands like Lysol and Mucinex — continued to mount when it was announced in July that activist investor Elliot Management had acquired a stake in Starbucks and when, on Friday, The Wall Street Journal reported that fellow activist Starboard Value also bought a stake in the company recently.
An activist investor is an individual or institutional investor who buys a large amount of a company’s stock to gain influence and pressure the company’s leadership to make changes, so some analysts began to speculate whether leadership at Starboard and Elliot would make a push to replace Narasimhan.
As such, many are not surprised that he is being replaced.
“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,” William Blair analyst Sharon Zackfia wrote in a note to Business Insider on Tuesday.
Mellody Hobson, who stepped down as Starbucks board chair to become lead independent director, indicated in a Tuesday interview on CNBC’s “Squawk Box” that the decision had been a few months in the making.
“He knows this industry, and we thought he would be the right leader for this moment.“
“Our board, a couple months ago, started to engage in a conversation about the leadership of the company, and I made an overture through someone to Brian, and he took the call,” Hobson said. “We thought we had the opportunity to engage with one of the biggest names in the industry, someone whose track record is just clearly proven, not only through the spectacular results that he’s had at Chipotle, but also before that at Pizza Hut and Taco Bell. He knows this industry, and we thought he would be the right leader for this moment.”
In a joint statement on Tuesday, Elliot managing partner Jesse Cohn and partner Marc Steinberg said they view the announcement as “a transformational step forward for the Company” and Schultz also expressed confidence in the choice of Niccols as Starbucks’ new CEO.
“Having followed Brian’s leadership and transformation journey at Chipotle, I’ve long admired his leadership impact,” Schultz wrote in a Tuesday statement. “His retail excellence and track record in delivering extraordinary shareholder value recognizes the critical human element it takes to lead a culture and values driven enterprise. I believe he is the leader Starbucks needs at a pivotal moment in its history. He has my respect and full support.”
According to Starbucks, Niccol will start in his new role on Sept. 9. Starbucks’ current chief financial officer, Rachel Ruggeri, will serve as interim CEO until that time.
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