Brian Niccol, Chief Government Officer of Chipotle
Anjali Sundaram|CNBC
Wall Highway thinks Brian Niccol is the suitable choice to reverse Starbucks â $” and relocate the chain previous the decadeslong Howard Schultz age.
Starbucks touched Niccol as its most up-to-date president and chair on Tuesday. Niccol modifications Laxman Narasimhan, that took management of the main activity in March 2023 after being handpicked by earlier chief government officer Schultz. In its final 2 quarters, Starbucks reported same-store gross sales decreases as its united state service stumbled. When he takes management of, Niccol will definitely be billed with renewing want for the agency’s espresso.
” In our sight, Starbucks will get a corridor of recognition eating institution chief government officer, and his go to as Starbucks chief government officer and Chairman recommends a brand-new age is underway,” TD Cowen analyst Andrew Charles composed in a notice to prospects, highlighting the worth of the blended responsibility.
Financiers are optimistic that he can revitalize the agency. Shares of Starbucks climbed up 20% in mid-day buying and selling on the data, inserting them on price for his or her best day on condition that the agency’s IPO in 1992. Then again, Chipotle’s provide dropped 9% as traders complained the lack of the very long time president.
Piper Sandler, TD Cowen and Baird all up to date Starbucks provide following the administration changes.
Numerous different specialists composed glowingly of Niccol, seeing him as the suitable particular person to tackle Starbucks’ sluggish gross sales. A troublesome buyer environment, aggravating client expertise and growing rivals from smaller sized coffeehouse have injured the chain’s effectivity only in the near past.
” We see this as a need rent for SBUX, and couldn’t assume of an additional full chief to take a contemporary look at SBUX’s procedures, reasonably priced inserting and basic method,” Oppenheimer professional Brian Bittner claimed.
Finish of an age?
Niccol’s hiring would possibly moreover imply completion of Schultz’s substantial impression over the agency he grew to become a world espresso titan.
” Considerably, Brian is most probably the one eating institution exec that has the gravitas to take care of the Howard Schultz Proprietor ‘overhang,'” Evercore ISI professional David Palmer composed.
Schultz functioned as chief government officer from 1986 to 2000, from 2008 to 2017 and after that from 2022 to 2023, actioning in two occasions to preserve the agency when gross sales remodeled sluggish. His final return stimulated issues in regards to the agency’s sequence.
On the finish of his final job, he promised that he wouldn’t return as president as soon as extra, though his visibility nonetheless impends massive over the agency. In May, after a harsh quarter for Starbucks, he composed an open letter on LinkedIn in regards to the agency’s difficulties and offered strategies to its leaders â $” with out calling Narasimhan.
Additionally after his retired life, Schultz’s participation within the agency has truly continued to be “a priority hanging over the availability,” Morgan Stanley professional Brian Harbour composed in a notice Tuesday. Mellody Hobson, that tipped down as Starbucks chair to return to be lead impartial supervisor as element of Tuesday’s administration shakeup, claimed on CNBC’s “Squawk Box” that she told Schultz about the discussions with Niccol, keeping him in the loop despite him having no formal role within the company anymore.
Schultz also remains a major Starbucks shareholder, with a roughly 2% stake.
Schultz endorsed Niccol’s hiring in the press release announcing the shakeup. In a statement, the chairman emeritus said he believes that Niccol is the leader the company needs at a “pivotal moment in its history.”
Some analysts believe that having Niccol, an experienced restaurant CEO, in the driver’s seat could mean that Schultz finally moves on. Niccol will also succeed Hobson as chair of the board, giving him more latitude to make changes.
“This will be the last time investors care what he has to say because Niccol now has the wheel and there is no longer ANY room for a backseat driver,” Gordon Haskett analyst Don Bilson wrote.
Niccol also has previous 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 different talent â and maybe evolve the brand from being founder-led, as Bernstein analyst Danilo Gargiulo wrote in a note.
Challenges ahead
While analysts largely cheered Niccol’s appointment, some were more cautious, noting that Starbucks is a larger and more complex business than Chipotle.
“Starbucks is a much more complicated model than Chipotle, with company and licensed stores, domestic and international locations, and a significant presence in struggling China,” BTIG analyst Peter Saleh wrote.
Chipotle has few licensed locations, except for some airport restaurants, and a relatively small international footprint, although Niccol has been pushing to grow its presence outside the U.S. in recent years.
Starbucks, on the other hand, has more international locations than U.S. cafes. And while investors have recently focused on the chain’s domestic performance, China, its second-largest market, has continued to struggle as competition there ramps up and the country’s economy lags.
Narasimhan said on the company’s latest conference call that he was exploring “strategic partnerships” for its China business, which could include a joint venture, tech partnership or other options. Niccol’s appointment could mean that Starbucks abandons that exploration, although he does have some experience with spinoffs from his time as head of Yum Brands’ Taco Bell. While he was there, the conglomerate spun off its China business into Yum China.
And while Chipotle’s burritos are still in high demand, consumers’ economic concerns have dampened their desire for coffee. That may prove to be a tougher hurdle for Niccol than investors anticipate.
“His challenge is to connect with a new customer,” Wedbush analyst Nick Setyan said. “Aside from the power to change the direction of macro headwinds, we view the shareholder euphoria (as expressed in the share price this morning) as premature.”
