Starbucks shares spiked 20% Tuesday after the company hired away Chipotle chief executive Brian Niccol to take over as CEO, a bold move by the coffee giant as it contends with flagging sales and activist investors calling for change. Niccol led a major turnaround at Chipotle after taking the reins in March 2018, overseeing a 770% increase in the company’s stock price during his tenure. As of Tuesday afternoon, Chipotle shares plunged over 7% on the news.
Niccol’s embattled predecessor, Laxman Narasimhan, was the handpicked successor to three-time CEO Howard Schultz, but he faced several challenges, including increased price competition and economic headwinds in China. His standing suffered a major blow when Schultz, now chairman emeritus, publicly criticized the company’s management in May.
The coffee maker’s shares dropped over 22% during Narasimhan’s tenure, while the S&P gained more than 36% gain in that span. Tuesday’s rally nearly erased the stock’s year-to-date losses as shares broached the $90 mark for the first time since early April. The stock also had risen Monday on Friday’s report from The Wall Street Journal that another activist investor, Starboard Value, had joined Elliot in building a stake in the coffee giant.
On Tuesday, Starbucks chairwoman Mellody Hobson told the Journal the company started discussing an executive shakeup two months ago, adding that Schultz met with Niccol and approved of the move.
Schultz said of Niccol in a statement to the Journal: “He has my respect and full support.”
Poaching arguably the top public restaurant CEO in the U.S. was a “no-brainer,” according to Michael Halen, a senior consumer products analyst at Bloomberg Intelligence.
“We believe he will instill a culture of accountability, transparency, execution and innovation, and his near-term focus may be on running the best cafes and improving Starbucks’ culture and brand relevance,” Halen and contributing analyst Amir Islam wrote in a brief note.
Niccol earned that reputation after joining Chipotle when it was still reeling from an E. coli outbreak in its restaurants across 14 states. Annual revenue more than doubled during his tenure, climbing to $10.6 billion last year. That number represented 15% year-on-year growth, even as the sales across much of the quick-service restaurant industry have slowed.
The industry vet, who previously served as CEO of Taco Bell and spent over 20 years in total at Yum Brands, has experience arriving off the back of activist pressure, as Bill Ackman’s Pershing Square Capital built a stake in Chipotle after the company’s food safety issues.
Halen and Islam noted that Chipotle appeared well-positioned to handle Niccol’s departure, citing interim CEO Scott Boatwright as a strong candidate to get the role permanently. CFO Jack Hartung’s decision to postpone retirement, they added, should also ease the transition.
