Brian Niccol, CEO of Chipotle
Anjali Sundaram |
Wall Street is convinced that Brian Niccol is the right choice to get Starbucks back on track – and lead the chain out of the decades-long Howard Schultz era.
Starbucks named Niccol as its new CEO and chairman on Tuesday. Niccol replaces Laxman Narasimhan, who took over the top job in March 2023 after being personally handpicked by former CEO Schultz. Over the past two quarters, Starbucks has seen declining sales at stores as its U.S. business faltered. After taking over, Niccol will be tasked with reigniting demand for the company's coffee.
“In our view, Starbucks is bringing in a restaurant CEO from the Hall of Fame, and his appointment as CEO and chairman of Starbucks suggests that a new era is underway,” said TD Cowen analyst Andrew Charles stressed the importance of the combined role in a note to clients.
Investors are confident he can revive the company. Starbucks shares rose 20 percent in afternoon trading following the news, putting them on track for their best day since the company went public in 1992. Meanwhile, Chipotle shares fell 9 percent as shareholders lamented the loss of their longtime chief executive.
Piper Sandler, TD Cowen and Baird have upgraded their share prices for Starbucks in the wake of the leadership changes.
Other analysts praised Niccol highly, believing he was the right person to turn Starbucks' sluggish sales around. A difficult consumer environment, a deteriorating customer experience and increasing competition from smaller coffee shops have hurt the chain's performance recently.
“We view this as a dream hire for SBUX and could not imagine a better suited leader to take a fresh look at SBUX's business operations, competitive positioning and overall strategy,” said Oppenheimer analyst Brian Bittner.
End of an era?
Niccol's hiring could also mean the end of Schultz's enormous influence over the company he had built into a global coffee giant.
“Importantly, Brian is probably the only restaurant manager with the authority to address the Howard Schultz founder's 'overhang,'” wrote David Palmer, an analyst at Evercore ISI.
Schultz served as CEO from 1986 to 2000, 2008 to 2017 and then from 2022 to 2023, stepping in twice to rescue the company when sales were sluggish. His recent appearance sparked doubts about the company's succession.
At the end of his last term, he vowed he would not return as CEO, although his presence at the company still looms large. In May, after a brutal quarter for Starbucks, he wrote an open letter on LinkedIn about the company's challenges and offered advice to executives – without mentioning Narasimhan by name.
Even after his departure from the company, Schultz's involvement with the company is “a question hanging over the stock,” Morgan Stanley analyst Brian Harbour wrote in a note on Tuesday. Mellody Hobson, who stepped down as Starbucks chairwoman to become lead independent director on Tuesday as part of the management shakeup, said on CNBC's “Squawk Box” that she told Schultz about the discussions with Niccol and kept him informed even though he no longer has an official role at the company.
With a stake of around 2%, Schultz also remains a major shareholder in Starbucks.
Schultz endorsed Niccol's hiring in the press release announcing the restructuring. In a statement, the chairman emeritus said he believes Niccol is the leader the company needs at a “pivotal moment in its history.”
Some analysts believe that the arrival of Niccol, a veteran restaurant CEO, could mean that Schultz is finally leaving his post. Niccol will also succeed Hobson as chairman of the board, giving him more room to make changes.
“This will be the last time investors care what he has to say because now Niccol is in the driver's seat and there is NO room for anyone hanging around in the back seat,” wrote Don Bilson, an analyst at Gordon Haskett.
Niccol also has experience taking over a founder-led brand and making it his own. When he joined Chipotle in 2018, he took the reins from founder Steve Ells, who had led the chain since 1993. Niccol moved the burrito chain's headquarters from Denver to Newport Beach to attract other talent — and perhaps evolve the brand away from founder leadership, Bernstein analyst Danilo Gargiulo wrote in a note.
Future challenges
While analysts largely welcomed Niccol's appointment, some were more cautious, saying Starbucks is a larger and more complex company than Chipotle.
“Starbucks is a much more complicated model than Chipotle, with owned and licensed stores, domestic and international locations, and a significant presence in crisis-hit China,” wrote BTIG analyst Peter Saleh.
Chipotle has few licensed locations, except for a few airport restaurants, and is relatively small internationally, although Niccol has pushed to expand its presence outside the U.S. in recent years.
Starbucks, on the other hand, has more international stores than cafes in the U.S. And while investors have recently focused on the chain's domestic performance, China, its second-largest market, continues to struggle as competition increases and the country's economy weakens.
Narasimhan said on the company's last earnings call that he is exploring “strategic partnerships” for the China business, including a joint venture, technology partnership or other options. Niccol's appointment could mean Starbucks abandons that exploration, although he has some experience with spin-offs from his time as Starbucks' chief executive. Yum Brands' Taco Bell. During his tenure, the company split its China business into Yum-China.
And while Chipotle's burritos are still in high demand, economic concerns have dampened consumers' appetite for coffee. That could prove to be a bigger hurdle for Niccol than investors expect.
“Its challenge is to attract a new customer,” said Wedbush analyst Nick Setyan. “Aside from the power to change the direction of macroeconomic headwinds, we think shareholder euphoria (as reflected in the share price this morning) is premature.”
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