Will the New Starbucks CEO Improve the Coffee Retailer's Performance?

Starbucks has appointed Brian Niccol as its new chairman and chief executive officer, effective Sept. 9, 2024. Niccol, who is currently the CEO of Chipotle, will replace Laxman Narasimhan, who is stepping down immediately. During his time at Chipotle, Niccol was credited with nearly doubling the company's revenue and significantly boosting its stock price. In the interim, Starbucks Chief Financial Officer Rachel Ruggeri will serve as acting CEO until Niccol officially takes over.

This follows the company's disappointing financial reports for the third quarter.

Mellody Hobson, the current board chair, will move into the role of lead independent director. The announcement has had a notable impact on the stock market, with Starbucks shares surging by 24%, a record one-day jump, while Chipotle’s stock dropped by 7.5% as of market close on Tuesday, according to Reuters. This change in leadership is seen as part of Starbucks' strategy to rejuvenate its brand and improve operational efficiencies. Former CEO Howard Schultz has expressed strong support for Niccol, citing his ability to restore trust, fix operations, enhance customer experience, and create shareholder value.

The transition comes amid criticism of Narasimhan’s leadership, particularly regarding operational issues and challenges related to Starbucks’ mobile ordering system. Schultz previously voiced dissatisfaction with Narasimhan’s management, which may have contributed to the board’s decision to seek new leadership. Starbucks began discussions about a leadership change approximately two months ago, and Hobson indicated that Niccol was the preferred choice after a thorough review process.

Under the previous CEO, the coffee retailer made multiple attempts to improve declining performance.

In May, Starbucks encountered its first quarterly sales decline since 2020, with a 2% drop in global revenue and reduced same-store sales in the U.S. and China. Then-CEO Narasimhan recognized the issues, including heightened competition and shifting consumer habits, and proposed several strategies to reverse the decline. These include enhancing the Starbucks app, improving service speed, extending operating hours, and experimenting with new menu items like tapioca-style pearls. The company also invested in store efficiency and expanded digital marketing to attract occasional customers.

At the time, former CEO Schultz posted on LinkedIn and stated that Starbucks' U.S. operations are the "primary reason for the company’s fall from grace." To improve, he recommended focusing on coffee quality and enhancing the customer experience in stores. He also emphasized the need to innovate Starbucks' mobile ordering and payment systems.

Another strategy Starbucks tried is introducing a "pairings menu," offering breakfast items with a tall hot or iced coffee or tea for $5 to $6 at participating locations. This promotion aimed to address rising food costs and declining sales by providing a more affordable breakfast option.

Moreover, Elliott Investment Management recently acquired a significant stake in Starbucks, aiming to address the company's recent struggles, including a 35% drop in share price since July 2021.

Now the question remains if Niccol will be able to turn things around for Starbucks.

During his tenure at Chipotle, the company’s stock price surged by approximately 800% since he assumed leadership in early 2018. This impressive growth is largely attributed to Niccol’s emphasis on increasing drive-thru locations and enhancing the company’s loyalty program, according to The New York Times.

Additionally, CNBC noted that a key driver of Chipotle's success under Niccol has been its app. Conversely, Starbucks’ app has faced criticism for playing a role in the company’s weaker results. Schultz and other critics have pointed to the increase in mobile orders as a cause of service delays, ultimately harming the customer experience.

Niccol is also recognized for revitalizing Taco Bell during his time as CEO before taking his spot at Chipotle and replacing founder Steve Ells. One of his initial challenges as CEO was guiding the chain through a foodborne illness crisis, which he addressed by implementing nationwide retraining for all employees, as reported by USA Today.

Finally, Reuters noted that before joining Yum! Brands in 2015, Niccol "spent 10 years at consumer goods giant Procter & Gamble. Currently, he is on the board of big-box retailer Walmart and has previously served on the boards of homebuilder KB Home and bike maker Harley-Davidson."

In a statement to the Wall Street Journal, Schultz voiced confidence in Niccol as Starbucks' new CEO. “This is the solution I had hoped for,” he said. "He has my respect and full support."