Brian Niccol, CEO of Chipotle
Anjali Sundaram | CNBC
Wall Street believes Brian Niccol is the right choice to turn around Starbucks — and take the chain beyond the decade-long Howard Schultz era.
Starbucks named Nicol as the latest CEO and chairman on Tuesday. Niccol replaces Laxman Narasimhan, who took over the top job in March 2023 after being tapped by former CEO Schultz. In its last two quarters, Starbucks reported a decline in same-store sales as its U.S. business slumped. Once he takes over, Nicole will be charged with reviving demand for the company’s coffee.
“In our view, Starbucks is taking on a Hall of Fame restaurant CEO, and his appointment as CEO and President of Starbucks signals that a new era is underway,” analyst TD Cowen Andrew Charles wrote in a note to clients, stressing the importance of the combined role.
Investors are confident that he can revive the company. Shares of Starbucks jumped 20% in afternoon trading on the news, putting them on pace for their best day since the company’s IPO in 1992. Meanwhile, Chipotle’s stock fell 9% as shareholders mourned the loss of longtime managing director.
Piper Sandler, TD Cowen and Baird all upgraded Starbucks shares after the leadership changes.
Other analysts wrote enthusiastically about Nichol, seeing him as the right person to address Starbucks’ sluggish sales. A difficult consumer environment, deteriorating customer experience and increasing competition from smaller coffee shops have hurt the chain’s performance recently.
“We view this as a dream hire for SBUX and could not think of a better-equipped leader to take a fresh look at SBUX’s operations, competitive position and overall strategy,” said Oppenheimer analyst Brian Bittner.
End of an era?
Niccol’s hiring could also mark the end of Schultz’s enormous influence over the company he has turned into a global coffee giant.
“Significantly, Brian is likely the only restaurant executive with the clout to address founder Howard Schultz’s ‘prominence,'” wrote Evercore ISI analyst David Palmer.
Schultz served as CEO from 1986 to 2000, from 2008 to 2017 and then from 2022 to 2023, stepping in twice to save the company when sales became sluggish. His latest return sparked concerns about the company’s succession.
At the end of his last term, he vowed not to return as CEO, although his presence still looms large over the company. In May, after a brutal quarter for Starbucks, he wrote an open letter on LinkedIn about the company’s challenges and offered advice to its leaders — without naming Narasimhan.
Even after his retirement, Schultz’s involvement in the company remained “a question hanging over the stock,” Morgan Stanley analyst Brian Harbor wrote in a note on Tuesday. Mellody Hobson, who stepped down as chairman of Starbucks to become an independent director as part of Tuesday’s leadership shakeup, told CNBC “Squawk Box” told Schultz about the discussions with Nicole, keeping him informed even though he no longer had an official role at the company.
Schultz also remains a major shareholder in Starbucks, with about 2%.
Schultz approved Nichol’s hiring in the press release announcing the renewal. In a statement, the chairman emeritus said he believes Niccol is the leader the company needs at a “pivotal moment in its history.”
Some analysts believe putting Niccol, an experienced restaurant CEO, in the driver’s seat could mean Schultz is finally moving on. Niccol will also succeed Hobson as chairman of the board, giving him more room to make changes.
“This will be the last time investors care about what he has to say because Nicoll is now in the wheel and there is NO room for a back seat driver,” wrote Gordon Haskett analyst Don Bilson.
Niccol also has previous experience in acquiring a brand under the leadership of the founders and his own. When he joined Chipotle in 2018, he took over from founder Steve Ells, who had led the chain since 1993. Niccol moved the burrito chain’s headquarters from Denver to Newport Beach to attract diverse talent — and perhaps evolve the brand from the founder, as Bernstein analyst Danilo Gargiulo wrote in a note.
Challenges ahead
While analysts largely cheered Niccol’s appointment, some were more cautious, noting that Starbucks is a larger and more complex business than Chipotle.
“Starbucks is a much more complex model than Chipotle, with corporate and licensed stores, domestic and international locations and a significant presence in struggling China,” wrote BTIG analyst Peter Saleh.
Chipotle has few licensed locations, other than some airport restaurants, and a relatively small international footprint, although Niccol has been pushing to increase its presence outside the U.S. in recent years.
Starbucks, on the other hand, has more international locations than US coffee shops. And while investors have recently focused on the chain’s domestic performance, China, its second-biggest market, has continued to struggle as competition there grows and the country’s economy lags.
Narasimhan said in the company’s latest conference call that it is exploring “strategic partnerships” for its China operations, which could include a joint venture, technology collaboration or other options. Niccol’s appointment could mean Starbucks abandons that exploration, though he has some experience with spinoffs from his time as head of Yum Brands’ Taco Bell. While there, the conglomerate spun off its China operations Yum China.
And while Chipotle’s burritos are still in high demand, consumers’ financial concerns have dampened their desire for coffee. This may prove to be a tougher hurdle for Niccol than investors expect.
“His challenge is to connect with a new customer,” Wedbush analyst Nick Setyan said. “Beyond the power to change the direction of macroeconomic headwinds, we view shareholder euphoria (as expressed in this morning’s share price) as premature.”
