"A CEO inducted into the Hall of Fame.", "A dream hire.", "The beginning of a new era."
These are the evaluations pouring in about Brian Niccol, the new leader appointed to the global coffee chain Starbucks. Wall Street views Niccol, the new CEO, as the right person to close the chapter of Howard Schultz’s era?the honorary chairman who built Starbucks into a 'coffee empire'?and to lead a new golden age. Under the command of 'chain veteran' CEO Niccol, expectations that Starbucks will escape the slump in performance caused the stock price to surge more than 24% on the day of the announcement.
On the 13th (local time), Starbucks announced the resignation of CEO Laxman Narasimhan and appointed Niccol, currently leading the U.S. fast-food chain Chipotle Mexican Grill, as the next CEO of Starbucks and executive chairman of the board. This means that Narasimhan, who took office in March last year as Schultz’s successor, will step down after 17 months in office.
The market immediately cheered. On that day, Starbucks’ stock price on the New York Stock Exchange soared 24.5% compared to the previous close, marking the largest single-day gain in history. Wall Street investment firms such as Piper Sandler, TD Cowen, and Baird simultaneously raised their target prices for Starbucks. This reflects the judgment that Niccol, who led successful management innovation during his tenure as Chipotle CEO, is the right person to reverse Starbucks’ recent poor performance.
CEO Niccol has a track record of turning around companies in management crises and boosting sales. During the six years he held the helm at Chipotle, operating profit increased about sevenfold, and the stock price rose approximately 800%. The Associated Press reported, "When Chipotle was shaken by thousands of food poisoning cases in 2018, CEO Niccol appeared," adding, "He reversed the situation by strengthening marketing and product innovation and adding loyalty programs to increase sales."
Niccol’s extensive experience in operating restaurant chains is also highlighted. Besides Chipotle, he served as CEO of Taco Bell for three years starting in 2015 and previously held an executive position at Pizza Hut. This contrasts with his predecessor Narasimhan, who had no experience in the food service industry, which caused some friction from the time of his appointment as Starbucks CEO. Before joining Starbucks, Narasimhan managed the British household goods company Reckitt Benckiser.
Brian Bitner, an analyst at Oppenheimer, called Starbucks’ appointment of Niccol a "dream hire," stating, "There is no better leader to look at Starbucks’ operations, competitive position, and overall strategy from a new perspective." Andrew Charles, an analyst at TD Cowen, said, "Starbucks has hired a restaurant CEO inducted into the Hall of Fame," suggesting "the start of a new era."
However, Niccol’s path forward is not without challenges. Immediate issues include poor performance and a stock price that has fallen more than 20% since Narasimhan’s appointment. Starbucks’ global same-store sales declined 3% year-over-year in the second quarter due to high inflation and boycott effects.
Moreover, Starbucks is a large-scale company more affected by various global market variables than Chipotle. Chipotle’s annual sales are around $10 billion, and its roughly 3,500 stores are mostly concentrated in the U.S. In contrast, Starbucks’ annual sales exceed $36 billion, with 38,000 stores across more than 80 countries. Particularly, Starbucks’ position in overseas markets is shrinking due to low-price competition from rivals like China’s Luckin Coffee, which is another challenge Niccol must address.
It is also a point of interest whether Niccol can step out of the shadow of Schultz, the honorary chairman who still wields strong influence over the company despite stepping down from frontline management. Schultz reigned as the coffee emperor for 35 years, growing Starbucks from just 11 stores at the start of his tenure to about 28,000 stores in 77 countries. Schultz currently holds about a 2% stake in Starbucks, the largest among individual investors. Narasimhan, who was appointed last year as Schultz’s successor, failed to meet expectations and eventually faced a more difficult situation after public criticism from Schultz.
CNBC diagnosed, "Demand for Chipotle burritos remains high, but coffee demand has decreased due to consumers’ economic concerns," adding, "This could be a more difficult obstacle for Niccol than expected." Wedbush analyst Nick Setyan pointed out, "Niccol’s challenge is to connect with new customers," and said, "The shareholders’ enthusiasm expressed by Starbucks’ stock price on this day is premature."
Niccol’s official start date as CEO is September 9, and until then, Chief Financial Officer Rachel Ruggeri will serve as interim CEO of Starbucks.
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