Starbucks announced that it is Tuesday replacing CEO Laxman Narasimhan with Chipotle CEO Brian Niccol, sending his stock soaring 24.5%, his best day yet.
Chipotle’s stock fell more than 10% on news that Niccol would be leaving after a successful tenure at the burrito chain.
Narasimhan’s resignation is effective immediately. Starbucks CFO Rachel Ruggeri will step in as interim CEO until September 9, when Niccol officially takes over the top job.
Narasimhan took over as chief executive in March 2023. The coffee giant’s performance has struggled this year, hurt by weak sales in the US and China, its two biggest markets. Last quarter, Starbucks reported a 3% decline in same-store sales.
Pressure on the company mounted as it struggled to drive store traffic. Former CEO Howard Schultz, who tapped Narasimhan as his successor, had written an open letter in May addressing the company’s issues and offering advice, but never addressed Narasimhan by name. Activist investor Elliott Management had acquired a stake in the company in recent weeks.
“Elliott has engaged with the Starbucks board over the past two months on our perspectives on the Company’s key issues, and we view today’s announcement as a transformative step forward for the Company,” said Elliott’s CEO, Jesse Cohn and partner Marc Steinberg. joint statement. “We welcome Brian Niccol’s appointment and look forward to continuing our engagement with the Board as he works to realize Starbucks’ full potential.”
Schultz, now the company’s chairman emeritus, also endorsed Niccol as the new CEO.
“I believe he is the leader Starbucks needs at a pivotal time in its history. He has my respect and full support,” Schultz said in a statement.
Fellow campaigner Starboard Value was too was mentioned to have amassed a position in the coffee chain. In a statement Tuesday, Starboard’s Jeff Smith said, “Brian is uniquely qualified to be the next leader of Starbucks. We believe this represents a very positive outcome for partners, shareholders and customers.”
Starbucks shares have fallen 21% during Narasimhan’s tenure, excluding Tuesday’s move.
Before joining Starbucks, Narasimhan was CEO of Reckitt, which owns brands such as Lysol and Mucinex. After being appointed as the new CEO, he spent months learning about Starbucks’ business, including training as a barista.
Niccol has served as Chipotle’s CEO since 2018 and previously led Yum Brands’ Taco Bell. During his tenure at Chipotle, its stock soared 773%. As CEO of Chipotle, he helped the chain recover from the foodborne illness scandal and steered its restaurants through the pandemic. In recent quarters, while other restaurants have reported sharp declines in consumer spending, Chipotle has seen traffic and sales climb, bucking the trend.
Mellody Hobson, who stepped down as Starbucks chairman to become lead independent director as part of Tuesday’s leadership shakeup, said the board had been considering replacing Narasimhan for several months.
“Our board, a couple of months ago, started talking about the leadership of the company and I made an overture through someone to Brian and he took the call,” Hobson said Tuesday on CNBC’s “Squawk Box.” “We believed we had an opportunity to work with one of the biggest names in the industry, someone whose track record has been clearly demonstrated, not only through his spectacular results at Chipotle, but before that at Pizza Hut and Taco Bell. He knows this industry and we thought he would be the right leader for this time.”
Hobson acknowledged that Narasimhan faced some challenges when he entered Starbucks with no restaurant experience, but added that he helped reduce turnover and address supply chain issues. However, it appears the board has more confidence that Niccol will be able to turn the business around quickly.
“But what we saw with Brian was someone who, frankly, has been there, done that — through all kinds of market environments, all kinds of cycles. When I talked to him, I remember him saying, ‘I know what to do.'” Hobson said.
One of Chipotle’s strengths under Niccol has been its implementation, which has helped fuel its strong performance in recent quarters. The Starbucks app has been one of the scapegoats for its poor performance. Schultz and other critics of Starbucks have pointed to an overabundance of mobile ordering that slows service and hurts the customer experience.
Chipotle, on the other hand, has added a second assembly line to its restaurants specifically for mobile ordering to keep up with digital demand. The burrito chain is building locations with “Chipotlanes,” which are meant for digital pickup.
Narasimhan’s surprise departure also suggests that Starbucks’ board is not interested in a deal with activist investors. When news of Elliott’s stake in Starbucks first broke in July, the hedge fund offered the Starbucks board a settlement that would have protected Narasimhan’s job, CNBC previously reported. The board had not notified Elliott of his leadership change in advance, Hobson said Tuesday.
The Starbucks board initially did not respond or engage with Elliott for some time, in part because of Schultz’s lingering influence. Elliott has amassed a stake worth $2 billion.
However, the two sides met just last week to discuss a settlement offer, CNBC previously reported.
— CNBC’s Robert Hamm contributed reporting to this story.
