In a sudden industry reset, Starbucks Corp. ousted its chief executive officer and picked Chipotle Mexican Grill Inc.'s Brian Niccol as its next leader. The move simultaneously flipped the fortunes of two of America's largest restaurant chains.
Shares of Starbucks, which now has a new lifeline, soared by 24 per cent on Tuesday, their biggest intraday gain on record. Meanwhile, shares of Chipotle, which has now plunged into uncertainty, dropped by as much as 13 per cent.
Niccol will start his new role on Sept. 9, the company said in a statement. The current chief financial officer will lead the company until then. Niccol's predecessor Laxman Narasimhan is stepping down from his position effective immediately.
The leadership shakeup comes after activist investors Elliott Investment Management and Starboard Value reportedly amassed stakes in the company. While Elliott hasn't outlined specific asks of Starbucks, many of its targets have changed management after its involvement. Elliott said on Tuesday that it welcomes Niccol's appointment.
At Starbucks, shares had plunged 20 per cent this year before the CEO change as the chain posted two straight quarters of comparable sales declines. The stores have been struggling to attract consumers who are more hesitant to spend on pricey lattes.
Board chair Mellody Hobson downplayed Elliott's influence in an interview Tuesday with CNBC, saying the company initiated discussions about the leadership of the company several months ago.
"Sometimes you have to make tough decisions and those tough decisions are the right thing to do," Hobson said in the interview. "It isn't necessarily because of outside forces."
Hobson said the board took full responsibility for the weakness at Starbucks and that it wanted to move fast to fix the business. "We own the outcomes," she said. "We're not passing any buck and we understand we have a job to do and we're doing it."
Although former CEO Howard Schultz doesn't have a board seat or hold a formal role within the company, Starbucks' sixth-largest shareholder provided a statement of support for the new CEO. Hobson said that she told Schultz a week ago about the decision and "he said, 'Mellody, that's a home run.'"
Hobson said the board hasn't laid out a specific turnaround plan yet, urging patience. "He's not in the seat yet, let him get there and then come out with the plans," she said. "He will be the one who will drive the strategy and the board will govern."
Narasimhan took over the helm at Starbucks in March 2023, following Schultz's third stint as CEO. Schultz had retaken the reins a year earlier when Kevin Johnson retired. Schultz had led Starbucks' expansion in the '80s and '90s before stepping down as CEO in 2000. He returned to the role eight years later and led the company until Johnson took over in 2017.
"The firm's CEO position has been a revolving door," wrote Adam Crisafulli, an analyst at Vital Knowledge.
Narasimhan's exit also means he'll miss out on time- and performance-based stock awards that currently have a gross value of more than $11.6 million, according to the company's latest proxy filing. That figure includes equivalent dividends he'd stand to receive.
Chipotle comeback
Niccol joined Chipotle as CEO in 2018 as the chain faced backlash following a string of food safety issues and activist pressure from the likes of Bill Ackman. The company has been a bright spot in the struggling restaurant industry. It's outperformed competitors in recent quarters by managing to bring in diners even as others reel from a drop in demand. Chipotle's shares have risen more than 20 per cent this year through Monday's close, but fell after the news as investors worried about who would take over.
Under Niccol, the burrito chain started investing in store remodels, faster service times and a fresh marketing campaign. He also partnered with DoorDash to capture diners who prefer delivery and added new menu items embracing diet trends.
Before joining Chipotle, Niccol was the CEO of Taco Bell for three years. He met success courting crowds with indulgent dishes such as Doritos Locos Tacos and A.M. Crunch Wraps. When he was named CEO of Chipotle, investors including Ackman welcomed the change.
"We view Niccol as an exceptional executive based on his track record in driving robust results at Chipotle since he arrived in 2018," Baird analyst David Tarantino said in a research note.
Chipotle said that Chief Operating Officer Scott Boatwright, who joined the company in 2017, will take over as interim CEO. CFO Jack Hartung, who recently said he would retire in 2025, has also changed course and agreed to remain with the company indefinitely as president of strategy, finance and supply chain to ensure a smooth transition, according to a statement.
"We remain confident in Chipotle's trajectory given deep management expertise," Sharon Zackfia, an analyst at William Blair, wrote. "While a CEO search creates inherent uncertainty, we view Boatwright as a strong candidate and also suspect that Chipotle will attract stellar outside interest."
