Starbucks faucets Chipotle’s Niccol as CEO in shock transfer, shares soar By Reuters

By Svea Herbst-Bayliss, Granth Vanaik and Waylon Cunningham

(Reuters) -Starbucks on Tuesday named Chipotle Mexican Grill (NYSE:) head Brian Niccol as its new CEO, poaching a profitable fast-food govt identified for reviving the burrito chain to guide a turnaround, in a shock transfer that despatched the espresso chain’s shares up over 20%.

Niccol replaces Laxman Narasimhan, whose tenure solely lasted a year-and-a-half after he was initially introduced in as CEO in March 2023 to engineer a “reinvention” of the world’s greatest espresso chain. Since then, the inventory has continued to falter, dropping practically one-quarter of its worth.

He inherits a number of challenges on the espresso large, which has been below strain from activist investor Elliott Funding Administration to enhance its enterprise, and has suffered from elevated competitors and weakening demand in the US and China.

Niccol’s appointment is a coup for Starbucks (NASDAQ:), as Chipotle’s annual gross sales have surged since he joined in 2018, and the inventory has greater than tripled during the last 5 years.

“This can be a important victory for Starbucks. Niccol has earned the respect and confidence of the funding neighborhood and will probably be given the much-needed leeway to make investments and time to show round Starbucks,” BTIG analyst Peter Saleh mentioned.

Starbucks had been below strain from Elliott, which had constructed a $2-billion stake. The hedge fund had steered Starbucks develop its board and make Elliott govt Jesse Cohn a director, although it was not demanding a CEO change.

Sources accustomed to Starbucks mentioned former CEO Howard Schultz had been urgent board members to try to resolve the corporate’s points with out providing a board seat to the activist investor.

Elliott on Tuesday mentioned that Niccol’s appointment was “a transformational step ahead” for the corporate. “We stay up for persevering with our engagement with the Board as it really works towards the conclusion of Starbucks’ full potential,” Elliott mentioned in assertion.

Starbucks just lately tweaked its mannequin to give attention to cellular pickup and supply orders quite than cafes arrange for lengthy visits.

When requested on CNBC if activist Elliott was consulted in regards to the shakeup, Starbucks Board Chair Mellody Hobson mentioned it had not been.

Trian Fund Administration, one other activist funding agency which tangled with Walt Disney (NYSE:) this yr, additionally owned Starbucks shares and had conversations with Hobson, in response to sources. Proud of the appointment, the fund has now offered its place. Trian didn’t instantly reply to a request for remark.

THE SIXTH CEO

If the beneficial properties maintain, Starbucks inventory was set for a document one-day proportion leap, reaching a greater than five-month excessive. Chipotle inventory fell 9%.

Craig Garthwaite, a professor at Northwestern (NASDAQ:)’s Kellogg (NYSE:) College of Administration, mentioned Niccol “has taken an upscale quick meals restaurant chain and improved it earlier than, and that’s what Starbucks is immediately, a fast-food restaurant. For Niccol this may very well be the final word problem in fixing the notion that is weighing on the corporate and the enterprise issues.”

In Might, days after Starbucks reduce its annual gross sales forecast, Schultz wrote on his LinkedIn account that its U.S. operations had been the “main purpose for its fall from grace,” and that senior leaders have to spend extra time with staff.

Starbucks in late July reported a 6% decline in U.S. comparable transactions for its most up-to-date quarter.

Underneath Narasimhan, Starbucks moved away from Schultz’s robust stance on Staff United, the union looking for to prepare its U.S. workforce. In February, the chain introduced talks that started a nationwide contract negotiating course of for the greater than 400 unionized shops.

Niccol, who will begin on Sept. 9, will grow to be solely the sixth CEO at Starbucks over its 50-plus-year historical past, with founder Schultz main the corporate for 23 years in three separate stints.

CFO Rachel Ruggeri will function Starbucks’ interim CEO till Niccol begins.

Chipotle mentioned its board had appointed Scott Boatwright, chief working officer, as interim CEO. Its shares had been down 9%.

Niccol joined Chipotle in 2018 from Taco Bell and helped the corporate overcome salmonella and E.coli outbreaks at a number of retailers.

“(Niccol) is a fixer and a doer and an executor,” mentioned Thomas Hayes, chairman at Nice Hill Capital.