Starbucks has announced a dramatic leadership change, with CEO Laxman Narasimhan stepping down after just a year in the role. The coffee giant has appointed Brian Niccol, CEO of Chipotle Mexican Grill, as its new chairman and CEO, effective 9 September. The news sent shockwaves through the market, with Starbucks shares soaring over 13% in pre-market trading, while Chipotle's dipped 8%.
Narasimhan's departure comes amidst a period of struggling performance for the coffee chain. Global sales at stores open for at least a year fell by 3%, with a 2% decline in the crucial North American market. This downturn has been attributed to a number of factors, including consumer fatigue with rising prices across the food industry and a shift in consumer demand away from traditional sit-down coffee shops towards drive-thru and mobile ordering options.
Starbucks' board has expressed confidence in Niccol's ability to revitalize the company, citing his proven track record of driving growth and innovation at Chipotle. Since taking the helm in 2018, Niccol has overseen a remarkable 800% increase in revenue for the Mexican-inspired food chain. Starbucks has highlighted his "culture carrier" approach and his "deep foodservice experience", suggesting he is well-equipped to address the company's current challenges.
The change in leadership comes at a critical juncture for Starbucks, as it faces mounting pressure from activist investor Elliott Investment Management. The company's share price has also been struggling, down 17% for the year. Retail analysts have pointed to a lack of innovation and a decline in the store experience as contributing factors to Starbucks' recent struggles.
"While some of the slowdown can be attributed to a more sluggish consumer cutting back, much is also the result of a worsening store experience and a lack of innovation in areas like food," stated Neil Saunders, managing director at GlobalData Retail. He believes that Niccol's experience in the foodservice industry will be crucial for navigating a complex landscape of challenges, including rising costs, labour issues, operational inefficiencies and customer dissatisfaction.
The abrupt departure of Narasimhan was likely influenced by the dissatisfaction of former CEO Howard Schultz, who publicly criticized his successor's leadership in a LinkedIn letter in May. Schultz, in a statement to the Wall Street Journal, expressed his support for Niccol, stating that he has his "respect and full support."
The appointment of Niccol marks a significant shift for Starbucks, as the company seeks to address its challenges and regain its position as a market leader. It remains to be seen whether Niccol can deliver on the board's expectations and revitalize the struggling coffee giant.
