It was a shocking announcement from Starbucks early Tuesday morning, after the ailing coffee chain announced that Brian Niccol, chairman and CEO of Chipotle (CMG), will become its next CEO effective September 9.
Niccol takes over the position from Lax Narasimhan, who served for less than 18 months.
Yahoo Finance Editor-in-Chief Brian Sozzi shares the latest news:
Starbucks is currently an icon in crisis. Don't believe me? Let's look at the facts.
First, the company's financial results and stock price are terrible.
In the most recent quarter, transactions in North America fell 6% as consumers turned a blind eye to the chain's increasingly expensive coffees and long wait times.
International sales fell 7%. Comparable sales in China fell 14%, prompting executives to say during the earnings call that the company is exploring strategic options for the business. Non-GAAP operating profit fell to 16.7% from 17.4%.
The previous quarter was also not exactly rosy.
Starbucks shares were down 20% in the past five years before today's pop. The S&P 500 is up 85%. Chipotle is up 201%.
“The problem is fixable, but it will take time,” a Starbucks insider familiar with the company's many problems told me recently.
Then there's the clumsy, chaotic leadership in the C-suite.
Howard Schultz, the meddlesome billionaire and Starbucks founder turned failed presidential candidate, not-so-secretly lashed out at his hand-picked successor Narasimhan in a LinkedIn post a few months ago, all but undermining his authority.
Narasimhan was then ridiculed on live television in an interview with an expert from my former boss at TheStreet, Jim Cramer.
Restaurant CEOs I’ve spoken to privately since then still can’t believe how poorly prepared Narasimhan seemed in the interview. A few even said he might not be around until well into 2025. They were right!
A Wall Street analyst told me the TV performance was to be expected, since Narasimhan is essentially a consultant posing as the CEO of a grocery retailer (he spent 19 years at McKinsey).
Last but not least, Starbucks continues to struggle with declining trust among employees in its stores, which has led to efforts to unionize.
In Niccol, Starbucks gets someone who can eventually eradicate all of these crises. Chipotle shares have risen 671% since Niccol became CEO, according to Yahoo Finance data, compared with 100% for the S&P 500 and 81% for McDonald's (MCD).
The crisis at Starbucks begins to end today. It won't be easy for Niccol, but at least he'll come in with the resume and mindset that “Lax” never had. That's a win and then some.
Read more about Niccol and his leadership here.
