The coffee grounds have settled on the boardroom drama at Starbucks and a victor has emerged. Take a bow Howard Schultz.
In a major shake-up, the Seattle-based coffee giant has named current Chipotle boss Brian Niccol as its new chief executive. He will replace Laxman Narasimhan, who leaves immediately.
Niccol is highly regarded for the turnaround at Chipotle — and his appointment should (at least temporarily) quieten the ambitions of Elliott Investment Management. The activist, with a stake in Starbucks, had been in talks with Narasimhan.
It is Schultz who appears victorious: the former CEO, major shareholder and vociferous critic of Narasimhan had opposed any deal with Elliott. The fact that Niccol’s appointment was not discussed with Elliott (but came with Schultz’s full support) suggests that the former may have been outmanoeuvred.
The market made its feelings clear. Starbucks’ shares shot up nearly 23 per cent to erase its losses for the year while Chipotle fell more than 13 per cent.
That, in part, reflects Niccol’s tenure at Chipotle. Since taking the helm in March 2018, sales at the Mexican-inspired chain have more than doubled to hit nearly $10bn last year. Profits are up 600 per cent. Even accounting for Tuesday’s drop, those who bought Chipotle shares on Niccol’s appointment would be sitting on a 873 per cent gain.
His experience should transfer well to Starbucks’ problems in the US: understaffing, customer frustration with long waiting times, and tired-looking stores are execution rather than demand issues. They can be overcome: Starbucks needs to invest in staff and improve its store operations and efficiency.
By contrast, the company’s troubles in China — its second biggest market — are deeper-rooted. Competition from foreign and local brands is stiff, while the economy is slowing. Revenue at its 7,306 Chinese stores fell 11 per cent during the fiscal third quarter to June.
For Niccol, the quick pick-me-up might be to slow expansion plans in China. Starbucks has more than doubled its store count there over the past six years. BTIG analyst Peter Saleh reckons Starbucks has invested more than $400mn a year — or 20-25 per cent of the company’s capital spend — to expand.
Fixing Starbucks will not be as straightforward as Chipotle. The coffee chain is a far bigger beast, with 39,477 locations worldwide. Chipotle has just 3,530 outlets, mostly in the US.
But Niccol’s appointment will buy the company some time to start addressing US problems and pare back in China. But his task comes with another complication: a backseat barista who has just secured what looks like a win.