Chipotle CEO Brian Niccol
Anjali Sundaram | CNBC
Wall Street believes Brian Niccol is the right choice to turn Starbucks around and move it beyond the decades-long Howard Schultz era.
Starbucks Starbucks on Tuesday named Niccol as CEO and chairman. Niccol will succeed Lakshman Narasimhan, who was appointed by Schultz to take the CEO role in March 2023. Starbucks has reported declining same-store sales over the past two quarters as its U.S. business has slumped. Niccol will be tasked with restoring demand for the company’s coffee.
“Starbucks is welcoming a Hall of Fame restaurant CEO to the company, signaling a new era for the company as it takes on the role of CEO and chairman,” analysts at TD Cowen said. In a note to clients, Andrew Charles highlighted the importance of this combined role.
Investors are confident he can revive the company. Starbucks shares rose 20% in afternoon trading on the news, on track to hit their highest level since the company’s 1992 IPO, while Chipotle shares fell 9% as shareholders mourned the loss of their longtime CEO.
Piper Sandler, TD Cowen and Baird all boosted Starbucks shares following the management change.
Other analysts gave Nicol high praise, saying he was the right person to tackle Starbucks’ sagging sales, as a tough consumer environment, a poor customer experience and growing competition from smaller coffee shops have weighed on the chain’s performance in recent days.
“We think this is a dream hire for SBUX and we can’t imagine a better leader to lead a fresh rethink of SBUX’s operations, competitive positioning and overall strategy,” said Oppenheimer analyst Brian Bittner.
The End of an Era?
Mr. Nicol’s hiring could also mark the end of Mr. Schultz’s outsized influence over the company he transformed into a global coffee giant.
“The bottom line is that Bryan is likely the only restaurateur with the dignity to handle the ‘burden’ of founder Howard Schultz,” wrote Evercore ISI analyst David Palmer.
Schultz served as CEO from 1986 to 2000, 2008 to 2017 and 2022 to 2023, twice stepping in to rescue the company from sales slumps, and his final return raised concerns about the company’s succession.
Though he vowed to never return as CEO at the end of his final stint, his presence still looms large over the company: After Starbucks had a tough quarter in May, he wrote an open letter on LinkedIn about the company’s challenges and offered advice to its leaders, without mentioning Narasimhan by name.
Morgan Stanley analyst Brian Haber wrote in a note Tuesday that Schultz’s involvement with the company following his retirement remains a “question lingering over the stock price.” Mellody Hobson, who stepped down as Starbucks’ executive chair to become lead independent director as part of a leadership shakeup on Tuesday, said in an interview with CNBC. In “Squawk Box”, she informs Schultz about her discussions with Nicole and continues to keep him informed, even though he no longer has an official role within the company.
Schultz is also a major shareholder in Starbucks, owning about 2% of the company’s shares.
Schultz endorsed Nicol’s hiring in a press release announcing the changes, saying in a statement that he believes Nicol is the leader the company needs at a “transitional moment in its history.”
Some analysts have speculated that having Nicol, a veteran restaurant CEO who will also succeed Hobson as executive chairman, could mean Schultz is finally stepping down. Nicol will also succeed Hobson as executive chairman, giving him more freedom to make changes.
“With Nicol now behind the wheel and no longer any room for a backseat driver, this will be the last time investors will care about what he has to say,” wrote Gordon Haskett analyst Don Bilson.
Niccol is no stranger to taking over founder-led brands and making them his own: When he joined Chipotle in 2018, he took over the reins from founder Steve Ells, who had led the chain since 1993. Niccol moved the burrito chain’s headquarters from Denver to Newport Beach to attract different talent and perhaps evolve the brand away from being founder-led, Bernstein analyst Danilo Gargiulo wrote in a note.
Future challenges
Analysts largely welcomed Nicol’s appointment, but some were more cautious, noting that Starbucks is a larger, more complex business than Chipotle.
“Starbucks has a much more complex business model than Chipotle’s, with company-owned and licensed stores, domestic and international locations, and a large presence in struggling China,” BTIG analyst Peter Saleh wrote.
Chipotle has few licensed locations aside from airport restaurants and a relatively small international presence, but Nicole has been focusing on expanding its presence outside the U.S. in recent years.
Starbucks, meanwhile, has more stores abroad than in the U.S. Investors have focused on the chain’s domestic performance recently, but China, its No. 2 market, continues to struggle amid increasing competition and the country’s struggling economy.
On the company’s most recent conference call, Mr. Narasimhan said the company was considering “strategic alliances” for its China business, which could include joint ventures, technology partnerships or other options. Mr. Nicol’s appointment could mean Starbucks is abandoning that consideration, although Mr. Nicol has experience with spinoffs during his time as head of Starbucks. Yum Brands Taco Bell. During his tenure, the conglomerate closed its China operations. Yum China.
While Chipotle burritos remain in high demand, economic uncertainty has dented consumer appetite for coffee, which may pose a tougher hurdle for Nicol than investors anticipate.
“His challenge will be to connect with new customers,” said Wedbush analyst Nick Setian. “Leaving aside the ability of macroeconomic headwinds to change direction, we believe the shareholder enthusiasm (as reflected in this morning’s stock price) is premature.”
