Starbucks replaces CEO

Coffee chain Starbucks Corp, struggling with fading sales and disgruntled investors, said on Tuesday that it’s replacing CEO Laxman Narasimhan with Brian Niccol, the chairman and CEO of Chipotle.

Narasimhan, who spent a little more than a year leading Starbucks, will step down immediately, the Seattle coffee giant said. Niccol will become Starbucks’ chairman and CEO on September 9. Chief Financial Officer Rachel Ruggeri will serve as interim CEO until that time.

Shares of Starbucks Corp soared more than 21 per cent in early trading on Tuesday.

Multiple issues

Narasimhan, a long-time PepsiCo executive who has also served as the CEO of Reckitt, a UK consumer health company, became Starbucks’ CEO in March 2023. He succeeded Howard Schultz, the long-time Starbucks leader and chairman emeritus who came out of retirement in 2022 to serve as the company’s interim CEO.

But investors and the company board quickly soured on Narasimhan as sales weakened and Starbucks dealt with multiple issues, including inroads by lower-cost competitors in China and boycotts in the Middle East and elsewhere related to the Israel-Hamas war.

Starbucks’ revenue dropped two per cent in the first three months of this year, the first quarterly sales decline for the company since the end of 2020. The decline prompted a rebuke from Schultz, Starbucks’ founder, who wrote in a LinkedIn post this spring that company leaders should spend more time in stores and focus on coffee drinks to turn around flagging sales.

Revenue fell again the next quarter. A new summer drink with boba-like raspberry “pearls” drove strong US sales, but the company had to pull back on marketing after it ran out of ingredients, Narasimhan said during a recent conference call with investors.

Starbucks’s shares had tumbled more than 20 per cent this year. On Tuesday, with the appointment of Niccol, shares were close to recovering all of their losses for 2024.

Elliott Investment Management, an activist firm with a significant stake in Starbucks, said it began talking about a change in leadership with Starbucks’ board two months ago. In a statement on Tuesday, the firm called Niccol’s appointment a “transformational step forward”.

“We welcome the appointment of Brian Niccol, and we look forward to continuing our engagement with the board as it works toward the realisation of Starbucks’ full potential,” Elliott Managing Partner Jesse Cohn and Partner Marc Steinberg said in a joint statement.

Starbucks Chairwoman Mellody Hobson — who will transition to lead independent director once Niccol becomes chairman — said he had transformed Chipotle since becoming its CEO in 2018 by focusing on menu innovation, operational excellence and digital transformation.

“Brian is a culture carrier who brings a wealth of experience and a proven track record of driving innovation and growth,” Hobson said in a statement. “Like all of us at Starbucks, he understands that a remarkable customer experience is rooted in an exceptional partner experience.”

Schultz said he has long admired Niccol.

“I believe he is the leader Starbucks needs at a pivotal moment in its history. He has my respect and full support,” Schultz said in a prepared statement.

Chipotle has continued to grow despite a larger slowdown in US fast-food sales as lower-income customers, in particular, eat more meals at home or look for better value. In the April-June period, Chipotle’s revenue increased 18 per cent while its same-store sales — or sales at stores open at least a year — rose 11 per cent.

The Newport Beach, California-based chain has lured customers with popular limited-time offerings and large portions.

Chipotle’s shares have risen more than 20 per cent so far this year, although they fell 12 per cent on Tuesday morning on word of Niccol’s departure.

Chipotle said on Tuesday that Scott Boatwright, the company’s chief operating officer, will become its interim CEO.

– AP