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Starbucks ousts chief and appoints Chipotle boss in response to activist pressure

Shares in coffee chain jump after Laxman Narasimhan replaced by Brian Niccol

 

© FT montage/AP/Getty Images

© FT montage/AP/Getty Images

Starbucks has ousted chief executive Laxman Narasimhan, replacing him with Chipotle’s Brian Niccol, as the world’s largest coffee chain responds to falling sales and activist pressure.

Narasimhan is stepping down immediately, while Niccol will leave burrito chain Chipotle Mexican Grill at the end of this month and start his new role on September 9, Starbucks said on Tuesday.

The appointment sparked a sharp share price reaction at both companies, with Starbucks rising more than 20 per cent and Chipotle falling 12 per cent in early New York trading.

The abrupt swap comes just over a year since Narasimhan was appointed to run Starbucks, from UK-based consumer products company Reckitt, the third chief executive in less than two-and-a-half years.

The decision to oust him was made after Starbucks came under attack from activist investor Elliott Management and the coffee chain’s former longtime leader Howard Schultz publicly criticised the management’s strategy.

Narasimhan oversaw the company’s first decline in comparable sales since 2020. Schultz, in charge through much of the company’s global growth, had publicly criticised Narasimhan and privately expressed his opposition to a settlement with Elliott, which had been holding talks with Starbucks over a number of demands, including board representation, the FT reported previously.

The board of directors began a conversation about replacing Narasimhan in recent months, the company’s longest serving director, Mellody Hobson, said in an interview on CNBC on Tuesday. “I made an overture through someone to Brian and he took the call,” she said.

Elliott, which controls a sizeable minority stake, said it had engaged with the company’s board for two months “regarding our perspectives on the company’s key issues” and the CEO change was “a transformational step forward”.

As part of the changes announced on Tuesday, current board chair Hobson, who has called Schultz a close friend and has served on the board for 19 years, will be replaced as chair by Niccol and instead named lead independent director.

“[Niccol] has my respect and full support,” said Schultz, who is the company’s biggest independent shareholder and retains board observer rights and other perks. “I thank Mellody and the Starbucks board for their deep commitment to shaping the future of this remarkable global phenomenon that is Starbucks.”  

 

Line chart of Share prices rebased showing The Niccol effect

 


Niccol took over as chief of Chipotle in 2018. Since then the burrito chain’s revenue has nearly doubled and its stock price has increased by nearly 800 per cent, Starbucks said in a press release announcing his appointment. Chipotle’s sales increased by double digits in its latest quarter at a time when many other fast-food chains’ sales declined.

Starbucks’s share price has fallen by about a fifth since Narasimhan took over from Schultz. As inflation-weary consumers balk at the price of its drinks, comparable sales have declined for each of the past two quarters. China, a key growth market, has been a particular challenge as the economy slows and competitors make inroads.

The company has also struggled with the effects of boycotts against western brands over the war in Gaza. A barista labour union that organised under Schultz has been pushing for higher pay and better work conditions as it negotiates a first contract at Starbucks cafés. 

The company’s financial officer Rachel Ruggeri will be chief in the interim.

Author: Editors Desk

Source: Financial Times

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