Starbucks The company announced on Tuesday that it was replacing Chief Executive Officer Lakshman Narasimhan. chipotle pepper CEO Brian Niccol’s announcement sent the company’s shares up 24.5%, its best day ever.
Chipotle’s shares fell more than 10% following the news that Nicol was leaving the company after a successful run at the burrito chain.
Narasimhan’s departure is effective immediately. Starbucks CFO Rachel Ruggeri will serve as interim CEO until Nicol officially takes over as CEO on Sept. 9.
Narasimhan took over as CEO in March 2023. The coffee giant has been struggling this year with weak sales in its two biggest markets, the United States and China. In its most recent quarter, Starbucks reported same-store sales fell 3%.
Pressure had been building for the company as it struggled to attract customers to its stores. Howard Schultz, the former CEO who appointed Mr. Narasimhan to succeed him, wrote an open letter in May offering his opinions and advice on the company’s problems but without mentioning Mr. Narasimhan by name. Activist investor Elliott Management L.P. had bought a stake in the company in recent weeks.
“Over the past two months, Elliott has been engaging with Starbucks’ board of directors to share its views on the company’s key issues and we view today’s announcement as a transformational step for the company,” Elliott managing partner Jesse Kohn and partner Mark Steinberg said in a joint statement. “We welcome Brian Niccol’s appointment and look forward to continuing our dialogue with the board to help Starbucks realize its full potential.”
Schultz, who is now the company’s chairman emeritus, also supported Nicol as the new CEO.
“I believe he is the leader Starbucks needs at this critical time in its history, and I have his respect and full support,” Schultz said in a statement.
Fellow activist Starboard Value has also reportedly acquired a stake in the coffee chain. “Brian is uniquely qualified to be Starbucks’ next leader, and we believe this will be a very good outcome for our partners, shareholders and customers,” Starboard’s Jeff Smith said in a statement on Tuesday.
Starbucks shares have fallen 21% during Narasimhan’s tenure, excluding Tuesday’s moves.
Prior to joining Starbucks, Narasimhan was CEO of Reckitt Co., which owns brands such as Lysol and Mucinex. After being named CEO, he spent months learning about Starbucks’ business, including training as a barista.
Nicol has been Chipotle’s CEO since 2018 and previously served as Yum Brands Taco Bell. During his time at Chipotle, the company’s stock price soared 773%. As Chipotle’s CEO, he helped the chain recover from a food-poisoning scandal and led its restaurants through the pandemic. In recent quarters, while other restaurants have reported sharp declines in consumer spending, Chipotle has bucked the trend, seeing foot traffic and sales grow.
Mellody Hobson, who stepped down as Starbucks’ chairwoman and became lead independent director as part of a leadership shakeup on Tuesday, said the board had been considering replacing Narasimhan for several months.
“A few months ago, our board of directors began discussing leadership of the company, and I made a proposal to Brian through somebody, and he got the call,” Hobson said on CNBC’s “Squawk Box” on Tuesday. “We thought we had an opportunity to bring in one of the best-known names in the industry, whose track record is evident not only from his incredible work at Chipotle, but also from his work prior to that at Pizza Hut and Taco Bell. He knows the industry well, and we thought he was the right leader at this time.”
Hobson acknowledged that Narasimhan faced some challenges when he joined Starbucks without any restaurant experience, but added that he helped reduce turnover and address supply chain issues, but the board seems confident that Nicol can turn the business around quickly.
“But I thought Brian was really someone who’d been through every market environment, every cycle. I remember when I spoke to him he said, ‘I know what to do,'” Hobson said.
One of Chipotle’s strengths under Mr. Niccol has been its app, which has helped drive strong performance in recent quarters, while Starbucks’ app has been one of the scapegoats for its weak performance, with Mr. Schultz and other Starbucks critics saying an overabundance of mobile ordering has led to slower service and a poor customer experience.
Meanwhile, Chipotle has added a second assembly line to its stores dedicated to mobile ordering to keep up with digital demand, and the burrito chain is building stores with “Chipotlanes” dedicated to picking up digital orders.
Narasimhan’s abrupt firing also suggests Starbucks’ board isn’t interested in making a deal with the activist investor. When news of Elliott’s Starbucks stake first broke in July, the hedge fund offered Starbucks’ board a settlement that would have kept Narasimhan’s job, CNBC previously reported. The board didn’t tell Elliott about the management shakeup in advance, Hobson said Tuesday.
Starbucks’ board initially took some time to respond to or negotiate with Mr. Elliott, who held $2 billion worth of stock, partly due to Mr. Schultz’s continued influence.
However, CNBC previously reported that the two sides met last week to discuss a settlement.
—CNBC’s Robert Hamm contributed to this story.
