Starbucks chairperson Mellody Hobson shared with CNBC on Tuesday that founder and former CEO Howard Schultz met with Brian Niccol last week. Hobson said when she personally called Schultz and told him what the board was pursuing, “he said, ‘Mellody, that’s a home run.’”
Naturally, deeper details of the conversation between Niccol, the CEO of Chipotle, and Schultz will likely remain under wraps. But it’s clear investors felt as amped as Schultz did, with shares of Starbucks surging 23 percent on the news that Niccol, after six or so years with the fast casual burrito giant, would take the reins at a struggling Starbucks.
BTIG analyst Peter Saleh suggested this turn came as a surprise to Chipotle. Neither company announced an investor call to discuss the changes, which hints things could have unfolded quickly. The pressure, however, was not sudden for Starbucks.
Its CEO, Laxman Narasimhan, a former Pepsi executive who stepped aside Tuesday, was Schultz’s hand-picked successor, coming over last March. He worked as CEO of Reckitt Benckiser Group, the parent of Lysol, Air Wick, and other retail brands, and had spent nearly two decades with consulting firm McKinsey & Company. His PepsiCo resume spanned multiple senior roles, including global chief commercial officer and CEO of Latin America, Europe, and Sub-Saharan Africa.
Schultz himself began to turn the dial up in May with an open letter that called out some of the company’s issues, although he didn’t address Narasimhan directly. This after Starbucks’ domestic traffic declined 7 percent in Q2 and same-store sales slid 3 percent. It was the worst performance outside of the pandemic or Great Recession for Starbucks. And it continued in Q3 as comps fell 2 percent on the back of a 6 percent drop in transactions.
Schultz’s LinkedIn-posted statement centered on Starbucks’ need to focus on its U.S. operations, which he believed were 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,” he wrote. “The answer does not lie in data, but in the stores.”
Schultz, who has no formal role in the company (he’s labeled chairman emeritus) but remains a top shareholder, suggested senior leaders and board members spend more time with employees. Their first action, he added, should be to reinvent the mobile ordering and payment platform to “once again be it the uplifting experience it was designed to be.”
“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 said. “Through it all, focus on being experiential, not transactional.”
MORE: What’s Suddenly Going Wrong at Starbucks?
In July, the seat got hotter for Narasimhan as activist investor Elliott Investment Management reportedly built a large stake in Starbucks. The hedge fund, which once pushed Costa Coffee to sell, as well as Cabela’s, and bought Barnes & Noble, among other moves over its history dating back to 1977, was reportedly working with Starbucks on some form of an agreement, the company revealed during its Q3 call. Narasimhan called the conversations “constructive,” but no further information was shared.
Investors speculated Elliott could pursue slower expansion and more capital return to shareholders, or even a spinoff of Starbucks’ China business. The latter’s comps were more strained in Q3 than North America, down 14 percent—split evenly between average ticket and traffic declines.
Sean Dunlop, senior equity analyst at Morningstar, said in a note “Narasimhan’s lack of domain experience and standoffish mien likely contributed to his removal, though we note that his biggest mistake was unfortunate timing, stepping into the brand as a widening inflation gap between grocery stores and restaurants, pressure in the firm’s large Chinese market, and souring labor relations finally spilled over into results.”
Elliott managing partner Jesse Cohn and partner Marc Steinberg released a joint statement Tuesday calling the hiring of Niccol “a transformational step forward for the company.”
Schultz added he was “the leader Starbucks needs at a pivotal moment in its history. He has my respect and full support.”
Starbucks’ shares had fallen north of 21 percent during Narasimhan’s time before Tuesday’s jump, bringing its market value to about $85 billion. Hobson, who stepped down as chair (Niccol is becoming that, too) to become lead independent director, also noted Tuesday that the board was thinking about replacing Narasimhann “a couple months ago.” She said she made an overture through someone to Niccol, who took the call. “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,” she said to CNBC.
Just last week, things got more frantic as The Wall Street Journal reported Starboard Value had also taken a stake in Starbucks. The activist is no stranger to this turnaround aim. Run by Jeff Smith, it recently secured board seats at Outback parent company Bloomin’ Brands. Smith once served as chairman of Papa Johns and owned 2.8 million shares before Papa Johns bought back 2.2 million of them in March 2023. Starboard had acquired $250 million in preferred shares when Papa Johns was working out of struggles and controversy centered on founder John Schnatter.
It wasn’t clear how much of a stake Starboard built at Starbucks or what its demands were. What was crystal, though, was the java brand was on the precipice of a shakeup.
Saleh said landing Niccol was a “significant victory for Starbucks.” As Tuesday’s stock bump proves, he has no shortage of clout within the investor community for his accomplishments at Chipotle.
Niccol arrived at the brand in February 2018 and replaced founder and chairman Steve Ells. It was still slogging through customer confidence concerns following its E. coli outbreak in 2015–2016 that sickened 60 customers in 14 states and erased about half of the chain’s market cap. The brand’s stock popped 40 percent that first year with Niccol, making it one of the top-10 performers in the S&P 500. He worked to modernize Chipotle’s ordering and grabbed a few lessons on marketing and brand perception from his time with Taco Bell, when Niccol faced down a PR nightmare in 2011 after a customer filed suit alleging the chain’s taco mixture was more filler than beef. Despite being withdrawn, Taco Bell’s image took a hit.
Niccol, who served as CEO from January 2015 until leaving for Chipotle, was Taco Bell’s marketing and innovation chief at the time. He was also Taco Bell’s president from 2013–2014, and the driving force behind the brand’s decision to turn Taco Bell into a hip concept that connects with younger guests beyond its late-night menu. This included hiring interns to run its social media accounts, devising a taco lens on Snapchat, and pushing Taco Bell’s food through Instagram via user-generated content.
He often talked in his early months at Chipotle about the brand being “invisible” and reactionary versus on the front-line of culture, like Taco Bell had become.
Chipotle, which under Niccol moved HQ from Denver to Newport Beach, California, addressed its issues with a “For Real” campaign that focused on fresh ingredients and process. He then led “Project Square One” and the chain’s efforts to boost throughput and start to open access through order-ahead pickup “Chipotlanes” across the country. AUVs climbed above $3 million and a road to 7,000 locations formed.
Same-store sales lifted 11.1 percent in Q2, with 8.7 percent stemming from transaction growth—its strongest traffic result in three years.
Chipotle’s sales nearly doubled in Niccol’s tenure (the number was $9.872 billion year-end 2023 in the U.S.), profit lifted nearly sevenfold, and the stock soared 800 percent. Chipotle completed a 50-for-1 split in late June—one of the biggest in market history—taking its pre-share price that Tuesday from $3,128.08 to $65.66.
To frame how dramatic this flip was, Chipotle’s stock had dipped below $300 in October 2017 for the first time since March 2013. Shares to the recent point were up 43 percent 2024 year-to-date alone.
William Blair analyst Sharon Zackfia said Niccol’s hire will “send ripples throughout the industry.”
But it is also worth considering what he’s walking into. Starbucks is an inherently more challenged and complex organization than Chipotle. Not only is it more than three times Chipotle’s size in revenue with a footprint spanning myriad countries, she said, but current trends are more challenged than even when Niccol joined Chipotle (comps were reporting mid-single digit gains in 2018). And it’s also a segment rife with beverage competition.
“Still, we expect Niccol to stick to what worked at Chipotle—honoring the brand, focusing on operations/speed, amplifying marketing messaging, and implementing a strict stage-gate process for new product innovation,” she said. “Notably, if Chipotle is any guide, Niccol will likely enter Starbucks in a listen-and-learn mode and is unlikely to make seismic changes in the early innings of his leadership.”
That stage-gate process was a hallmark of Niccol’s at Chipotle. The brand built the backend before innovating on the front. And it always proved deliberate.
BTIG’s Saleh agrees Starbucks is going to be a different kind of challenge. It features the largest corporate footprint of any restaurant chain in the world.
As of March 31, the North America split was 10,827 corporate stores and 7,238 licenses. Internationally, it broke apart as 9,282 company run and 11,604 licensed. Chipotle, outside of a recent international development in the Middle East, runs an entirely corporate base of roughly 3,500 restaurants.
And there’s the struggling China business to navigate. “We believe Brian has earned investor respect and confidence [as well as founder Howard Schultz], and will be given the leeway to make investments domestically and or stay the course in China,” Saleh said.
Like Zackfia, Saleh doesn’t expect anything major to occur near-term, from a slowdown in China growth to an outright sale, or otherwise. “We also believe that the change in leadership will attract investors back to Starbucks that were previously sidelined,” he said.
Both analysts, while an obvious setback, don’t believe Niccol’s departure will derail what Chipotle has built during the last six years. He’ll remain at the helm through the month and then COO Scott Boatwright, a Chipotle vet since 2017, will step into the interim post. CFO Jack Hartung, who recently announced his retirement from Chipotle in 2025, agreed to remain with the organization indefinitely as president of strategy, finance and supply chain. In this new role, he will support Boatwright and continue his current oversight of incoming CFO Adam Rymer, as well as global head of supply chain Carlos Londono.
Lead independent director Scott Maw was named chairman of the board effective immediately.
Starbucks CFO Rachel Ruggeri will serve as interim CEO until Niccol’s arrival.
Zackfia said, in addition to his efforts with product innovation, marketing, and the digital ecosystem, Niccol spent ample time at Chipotle developing a deeper, more experience management bench. “That management bench is the reason we are confident in Chipotle’s prospects notwithstanding today’s news, as seven-year Chipotle veteran and COO Scott Boatwright will replace Niccol as interim CEO,” she said. “Boatwright has been an instrumental figure in leading Chipotle’s efforts to improve operations, integrate new technology, reduce employee turnover, and bolster customer satisfaction.”
Zackfia added she views Boatwright as a strong candidate but suspects Chipotle will attract stellar outside interest. Saleh called it a “once-in-a-lifetime opportunity.”
“… we believe Chipotle is on excellent footing having executed a proven playbook including shifting to drive-thru development, investing in national advertising, and initiating a rewards program under Mr. Niccol’s leadership,” he said. “While we are unsure if the board will eventually appoint Mr. Boatwright as permanent CEO, we would expect an excellent slate of candidates lining up to interview …”
Chipotle today boasts an enterprise value of 26 times William Blair’s 2025 EBITDA estimate, with projected EPS growth in the high-teens this year and 20 percent-plus next year as development accelerates.
Chipotle opened 52 company-run units in Q2, including 46 with the order-ahead pickup “Chipotlane,” as well as an international licensed restaurant. The company expects to bring 275–315 new stores to market in fiscal 2024, with 80 percent of those featuring a Chipotlane.
“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,” Schultz said in a statement of Niccol’s hire.
