When Brian Niccol became chief executive of Chipotle Mexican Grill in early 2018, he took the reins of a burrito chain struggling to win back customers after a string of poorly handled food safety incidents, a sloppy quality control system, and a lack of new dishes to entice diners. Just a few years later, Chipotle's annual sales have doubled to almost $10 billion, with growth and profit continuing to outpace rivals this year.
Starbucks, whose board on Tuesday announced the ouster of CEO Laxman Narasimhan and his replacement by Niccol, is clearly hoping he'll work the same kind of magic to revitalize the struggling coffee chain. And Wall Street seems to think he will: Starbucks shares rose 20% on the news in morning trading, while Chipotle's stock dipped 11%.
Starbucks and Chipotle are very different companies. The coffee chain is a much larger and more complex, operating in 86 countries and generating about $36 billion in revenue in the last year. Chipotle, on the other hand, is almost entirely U.S.-focused, with 2023 revenue right around $10 billion. But Niccol has a strong track record as a fixer, and his brand-building Midas touch has already won investors' confidence.
"The range of issues to address is larger and more of it is macro-related," John Zolidis, president of Quo Vadis Capital, a research firm, wrote in a note to clients this week. "However, based on the track record, we believe it makes sense to bet on his success in this new domain."
Trouble at Starbucks
Starbucks has had a host of problems over the years, but its most recent struggles have to do with activist investors.
Narasimhan, the handpicked successor to Howard Schultz, the entrepreneur who turned the company into a coffee titan, had drawn the ire of hedge fund Elliott Management, which was dissatisfied with slowing sales growth in the U.S. and tougher competition in China, a major plank in Starbucks' long-term plan. A second hedge fund, Starboard, has also reportedly recently taken a stake in the company.
In May, Schultz publicly criticized Starbucks, and Narasimhan by default, with whom he had worked hand in hand for six months before becoming CEO to ensure a smooth transition. "Inspire your people, exceed the expectations of your customers, and let culture and servant leadership lead the way," Schultz wrote in an open letter on LinkedIn.
Not helping matters has been the uneven quality of service at Starbucks stores in the U.S. and customer pushback on aggressive price increases as the pandemic eases.
"There is a sense that Starbucks has been on the back foot for too long and that it has lost sight of the basics," said Neil Saunders, a managing director at GlobalData, an analytics and consulting firm.
Niccol the ideas man
Enter Niccol, who has a strong track record of creating blockbuster brands and turning around troubled companies.
He began his career at Procter & Gamble in 1996, heading up marketing for Scope mouthwash. Later, as CEO of Yum Brands’ Taco Bell chain from 2015 to 2018, the 50-year-old updated its image and won new customers with the “Live Más” ad campaign. There, he also launched mobile ordering, and a wave of offbeat but popular new products. The Doritos Locos Taco, a megahit, was Niccol’s idea; so was the Cap’n Crunch doughnut hole mashup.
At Chipotle, the Chicken Al Pastor launched last year has been a big success. Of course, not all launches have been runaway hits, as Niccol explained to Fortune in an in-depth feature last year. The Garlic Guajillo Steak limited time offer entree from 2022, for example, didn't do as well as expected. But it also illustrated that Chipotle was launching more products, more often. Most were hits, but if they flopped, Chipotle moved on quickly—something the activist investors have been clamoring for from Starbucks.
Under Niccol, the burrito chain has also conducted store remodels, updated marketing, and changed operational processes to speed up service times, a bête noire for Starbucks. He also found great success at Chipotle with his push to develop an industry-leading app to streamline digital ordering, and boosted the company’s loyalty program. These are areas where Starbucks was an early pioneer, but where it wants to make updates.
Finally, Niccol may bring a fresh set of eyes to Starbucks' labor relations with its workers, which came under widespread public scrutiny during Schultz's third and most recent stint as CEO.
In 2022, Chipotle saw the first successful unionization vote in its history at a store in Michigan, but it also closed a restaurant in Maine where workers wanted to unionize. (Chipotle said it closed the location because it couldn’t staff it adequately.) So Niccol has navigated these waters, but taken a less confrontational stance than Schultz did, when he called the unionization efforts a personal affront. Niccol may also be able to build on Narasimhan's approach, which was more pragmatic, and focused on creating a framework for a labor contract in the coming months.
"I am energized by the tremendous potential to drive growth and further enhance the Starbucks experience for our customers and partners," Niccol said in a statement on Monday.
He will certainly have a lot from his Chipotle and Taco Bell experience to draw upon.
