Starbucks forces out its CEO and brings in Chipotle’s Brian Niccol

Starbucks has pushed out its CEO in favor of someone with a reputation for turning troubled brands around.

The coffee chain announced Tuesday that it will replace CEO Laxman Narasimhan with Chipotle Mexican Grill chief executive Brian Niccol. Narasimhan, who had been CEO for less than two years, steps down immediately and leaves the company’s board, the company said. Starbucks will be led on an interim basis by chief financial officer Rachel Ruggeri until Niccol officially takes over Sept. 9.

With Niccol, Starbucks is “bringing in a CEO who understands how to ask the right questions, how to figure out what the solutions are and make things happen,” said Mansour Javidan, an Arizona State University professor who studies executive leadership.

Starbucks described Niccol as someone who “transformed” Chipotle. Investors seemed to share the enthusiasm for him: Shares of Starbucks rose more than 20% Tuesday, while Chipotle’s stock price fell more than 7%.

“We welcome the appointment of Brian Niccol, and we look forward to continuing our engagement with the Board as it works toward the realization of Starbucks’ full potential,” said Jesse Cohn and Marc Steinberg, managing partner and partner with activist investor Elliott Investment Management, which said it has bought a large stake in Starbucks in recent months.

Chipotle’s revenue doubled, wages rose, and the stock price has gained more than 700% since he took over as CEO in 2018. “This is a guy who can do execution and implementation in a rapidly changing environment,” Javidan said.

The abrupt leadership change for Starbucks caps a tumultuous couple of years marked by stagnant growth and labor unrest.

Narasimhan became CEO in October 2022, when longtime leader Howard Schultz ended his latest stint as chief executive. But Narasimhan’s predecessor has cast a shadow over his leadership, with Schultz in May posting on his LinkedIn account that the company’s declining U.S. sales were “the primary reason for its fall from grace.” Schultz, who has not had any role in the company since April 2023, called on the company’s senior leaders to “spend more time with those who wear the green apron.”

Narasimhan actually did just that not long after he took over and embarked on a mission to “refound” Starbucks, taking the somewhat unusual step of spending time working alongside rank-and-file employees in stores across the country. But Starbucks’s stock price followed a downward trajectory throughout most of Narasimhan’s time at the helm. Most recently, sales declined 3% globally for the 13-week period ending June 30.

Narasimhan’s relatively short stint as CEO probably reflects the ever-increasing burdens on business leaders in the wake of the coronavirus pandemic, Arizona State’s Javidan said. Starbucks has a “huge issue with efficiency” has it grapples with growing wait times and outdated technology and processes, he said.

Executive churn has risen sharply in the past few years, according to data from Challenger, Gray and Christmas. So far in 2024, more than 1,100 CEOs have announced their departures, the highest year-to-date total, according to the firm’s records.

Most CEOs serve for five to seven years, according to Leon Prieto, a professor of management at Clayton State University and a scholar with the Academy of Management.

“Churn is normal,” Prieto told The Washington Post in an email. “But when it escalates, it’s a sign the company is navigating significant challenges.”

Starbucks is trying to adapt to increasing competition, soaring inflation and shifting consumer behaviors, pressures that “can quickly reveal a mismatch between the CEO’s approach and the board’s expectations,” Prieto said.

Starbucks has been losing market share to smaller, independent coffee shops and has done little to change its offerings, according to GlobalData analyst Neil Saunders.

“While some of the slowdown can be attributed to a more sluggish consumer cutting back, much is also the result of a worsening store experience and a lack of innovation in areas like food,” Saunders wrote in a note to investors.

Both Starbucks and Chipotle have been subject to increasing unionization campaigns since 2021, when the fast-food sector began to face sharp labor shortage and a resurgent national union movement. Despite the company’s resistance, more than 450 Starbucks coffee shops have voted to formally organize since the first successful union election at a Buffalo store, according to a union representing Starbucks workers.

Chipotle has also seen its share of labor issues. In early June, a group of shareholders pressed to conduct a third-party audit concerning the safety and well-being of the company’s workers. The group alleged “rampant” problems with customer violence and unsanitary working conditions.

Starbucks shares were up 20% in early-afternoon trading, while Chipotle was down 8%.

Niccol has a reputation as a turnaround artist. Billionaire investor Bill Ackman’s Pershing Square hedge fund, which owns a sizable stake in Chipotle, played a part in bringing Niccol on board to help the company navigate a challenging period in 2018.

Hired after a successful stint running Taco Bell, Niccol helped to lift Chipotle as it struggled with the fallout from multiple cases of food contamination. He helped to modernize the company’s ordering processes and expand its menu.

Tuesday’s news prompted Cowen analyst Andrew Charles to change his rating on Starbucks to a buy, an upgrade from the previous rating of hold. Charles praised Niccol as a “hall-of-fame restaurant CEO” and predicted that he would improve Starbucks’s branding and marketing, upgrade its operations and update the chain’s offerings.

“Starbucks’ beverage innovation efforts have failed to move the needle since the Pumpkin Spiced line in August-October 2023,” Charles wrote in a note to investors. “Mr. Niccol has introduced on-brand menu innovation at Chipotle. … We believe Mr. Niccol will bring a similar discipline that will enable Starbucks to better succeed with menu innovation.”