Starbucks announced on Tuesday that it will replace CEO Laxman Narasimhan with Chipotle Chief Executive Brian Niccol sent the stock up 24.5%, its best day yet.
Chipotle shares fell more than 10% following news that Niccol would be leaving after a successful run at the burrito chain.
Narasimhan's departure will be effective immediately. Starbucks CFO Rachel Ruggeri will serve as interim CEO until Sept. 9, when Niccol will officially take over the top role.
Narasimhan took over as CEO in March 2023. The coffee giant's performance has struggled this year, hurt by weak sales in the United States and China, its two largest markets. In its most recent quarter, Starbucks reported a 3% decline in same-store sales.
Pressure mounted on the company as it struggled to attract traffic to stores. Former CEO Howard Schultz, who hand-picked Narasimhan as his successor, had written an open letter in May, weighing in on the company’s problems and offering advice but never referring to Narasimhan by name. Activist investor Elliott Management had taken a stake in the company in recent weeks.
“Elliott has been in close contact with Starbucks’ board over the past two months to discuss our perspectives on key issues facing the company and we view today’s announcement as a transformative step for the company,” said Jesse Cohn, Elliott managing partner, and Marc Steinberg, partner, in a joint statement. “We welcome the appointment of Brian Niccol and look forward to continuing to engage with the board as it works to realize Starbucks’ full potential.”
Schultz, now the company's chairman emeritus, also backed Niccol as the new CEO.
“I believe he is the leader Starbucks needs at a crucial time in its history. He has my full respect and support,” Schultz said in a statement.
Fellow activist Starboard Value was also reported to have landed a position at 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 chosen as the incoming CEO, he spent months learning the 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 time at Chipotle, its stock soared 773%. As Chipotle’s CEO, he helped the chain recover from its foodborne illness scandal and led its restaurants through the pandemic. In recent quarters, while other restaurants have reported a sharp decline in consumer spending, Chipotle has seen its traffic and sales rise, bucking the trend.
Mellody Hobson, who stepped down as Starbucks chairwoman to become lead independent director as part of Tuesday's leadership shakeup, said the board had been thinking about replacing Narasimhan for several months.
“A couple of months ago, our board of directors started having a conversation about the leadership of the company, and I made an approach to Brian through someone, and he answered the call,” Hobson said Tuesday on CNBC's “Squawk Box.” “We thought we had an opportunity to engage with one of the biggest names in the industry, someone whose track record is clearly demonstrated, not only through the spectacular results 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.”
Hobson acknowledged that Narasimhan faced some challenges coming into Starbucks without restaurant experience, but added that he helped reduce staff turnover and address supply chain issues. However, the board appears to be more confident that Niccol will be able to turn the business around quickly.
“But what we saw in Brian was someone who has honestly been there and been 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 app, which has helped drive its strong performance in recent quarters. Starbucks’ app has been a scapegoat for its weak performance. Schultz and other Starbucks critics have pointed to the overuse of mobile ordering, which 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 in order to meet digital demand. The burrito chain has been building out locations with “Chipotlanes,” which are reserved for digital order pickup.
Narasimhan’s surprise ouster also suggests that Starbucks’ board isn’t interested in a deal with activist investors. When news of Elliott’s stake in Starbucks first broke in July, the hedge fund offered Starbucks’ board a deal that would protect Narasimhan’s job, CNBC previously reported. The board hadn’t informed Elliott about its management shakeup in advance, Hobson said Tuesday.
Initially, Starbucks' board did not respond or communicate with Elliott for some time, in part because of Schultz's lingering influence. Elliott has amassed a stake worth as much as $2 billion.
However, the two sides met last week to discuss a settlement offer, CNBC previously reported.
— CNBC's Robert Hum contributed to this report.
