As Starbucks grapples with declining sales, the company faces yet another leadership change.
Laxman Narasimhan is stepping down immediately after just a year as CEO, according to the company’s announcement on Tuesday.
In a move to turn things around, Starbucks has appointed Brian Niccol, CEO of Chipotle and a well-known corporate turnaround expert, as its new chairman and CEO, starting September 9.
Niccol, who will become Starbucks’ fourth CEO in two years, has been leading Chipotle since 2018. Under his leadership, Chipotle’s revenue surged nearly 800%, setting new industry standards and creating substantial growth.
Mellody Hobson, Starbucks’ new lead independent director, praised Niccol’s extensive experience and innovative approach. “Brian is a culture carrier with a proven record of driving growth and innovation,” Hobson said. “We believe he will be a transformative leader for Starbucks and its global community.”
Following the announcement, Starbucks’ stock surged nearly 19%, erasing its year-to-date losses and heading towards its largest one-day percentage gain since going public in 1992. In contrast, Chipotle’s stock fell 9%.
Narasimhan, who is also stepping down from the board, took over as CEO in March 2023. His tenure saw significant struggles for the coffee chain, with a recent 3% drop in global sales at stores open for at least a year, including a 2% decline in North America.\
Starbucks’ ongoing challenges highlight consumer fatigue with rising prices and expose weaknesses in its business model, which has shifted from a sit-down coffee shop to a predominantly drive-thru and mobile takeout chain.
“In the midst of significant challenges, Laxman has remained dedicated to enhancing the business to better serve our customers and partners. We wish him all the best and are confident that he will achieve great success in the future,” Hobson stated.
Who is Niccol?
Niccol joined Chipotle in February 2018, leading the turnaround of the chain following an E. coli outbreak that affected 22 people. Under his leadership, the company expanded its menu, enhanced its digital ordering and rewards program, and saw its stock rise by over 800%.
Chipotle announced that Niccol will be stepping down on August 31, with Chief Operating Officer Scott Boatwright taking over as interim CEO.
Niccol remarked, “Leaving such a remarkable company and the talented team I’ve worked with is challenging, but I am confident the business is in excellent shape and ready for future growth with its strong leadership team.”
With extensive experience in the fast-food industry, Niccol previously served as CEO of Taco Bell from 2015 to 2018 before moving to Chipotle. He also held various executive roles at Pizza Hut, another Yum! Brands chain, prior to his tenure at Taco Bell.
R.J. Hottovy, head of analytical research at Placer.ai, noted Niccol’s proven ability to drive customer visits through menu innovations, engaging marketing, and operational improvements at both Taco Bell and Chipotle.
“Chipotle has outperformed the quick-service restaurant sector in recent years, and we anticipate that new product developments and advertising initiatives will be a key focus during his early days at Starbucks,” Hottovy added.
Why Narasimhan left
The sudden leadership change at Starbucks comes as the company’s stock slides and it faces ongoing discussions with activist investor Elliott Investment Management. The coffee giant is also grappling with declining sales in the US and competition from budget-friendly rivals like Luckin Coffee, which has impacted its market share and performance in China, its second-largest market.
Neil Saunders, retail analyst and managing director at GlobalData Retail, commented, “While some of the slowdown can be attributed to a more cautious consumer, much of it is due to worsening store experiences and a lack of innovation in areas like food.”
Saunders added that Starbucks has been losing ground to smaller, independent coffee shops and other competitors. He noted that Narasimhan’s inability to effectively address these issues has frustrated investors.
Saunders believes that Niccol’s extensive foodservice experience will be advantageous as Starbucks tackles a range of challenges, including rising costs, labor issues, operational inefficiencies, and increasing customer dissatisfaction.
Additionally, former Starbucks CEO Howard Schultz’s dissatisfaction with Narasimhan likely contributed to the leadership change. Schultz criticized his successor’s leadership in a widely circulated LinkedIn letter in May, attributing the chain’s struggles in the US to Narasimhan’s management.
In a statement to the Wall Street Journal, Schultz expressed his “respect and full support” for Niccol.
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