By DEE-ANN DURBIN

In 2018, Chipotle was reeling from multiple food poisoning outbreaks that had sickened 1,100 people, the company called Taco Bell CEO Brian Niccol to turn things around.

As Chipotle’s Chairman and CEO, Niccol beefed up the company’s marketing and product innovation, added a loyalty program and improved store operations. He also instituted employee benefits, like a program that pays employees’ college tuition costs at certain schools.

Chipotle’s revenue since then has nearly doubled.

On Tuesday, Niccol answered another call, this time from Starbucks. The Seattle coffee giant named Niccol as its new chairman and CEO, hoping he can revive fading sales and re-establish Starbucks as a destination where customers are willing to pay premium prices.

“I am excited to join Starbucks and grateful for the opportunity to help steward this incredible company, alongside hundreds of thousands of devoted partners,” Niccol said.

However, Niccol faces far larger and deeper challenges at Starbucks, which has 38,000 stores worldwide compared with Chipotle’s largely U.S.-based chain of 3,500 restaurants. Niccol has to figure out how to get inflation-weary U.S. customers back into stores for its pricey drinks.

“I will pay $9 for a burrito. I’m not sure I’m going to pay $9 for a cup of Venti shaken espresso,” said Nancy Tengler, CEO of Laffer Tengler Investments, which owns shares in Starbucks and Chipotle.

In the U.S., Starbucks has struggled to balance demand for mobile orders and faster service with a place where other customers can find relaxing cafe environment. Tengler said long wait times and a deluge of mobile orders have damaged the in-store experience at Starbucks, and Niccol will have to develop a plan to flip that around.

But Starbucks is facing challenges on multiple fronts in its drive for growth.

In China, Starbucks’ second-largest market with 6,500 stores, customers are increasingly opting for coffee from lower-priced rivals. In the Middle East Starbucks is seeing boycotts related to the Israel-Hamas war.

Niccol replaces Laxman Narasimhan, who is stepping down immediately after spending a little more than a year in Starbucks’ top job. Niccol will become Starbucks’ chairman and CEO on Sept. 9. Chief Financial Officer Rachel Ruggeri be the interim CEO until then.

After succeeding Howard Schultz, the longtime Starbucks leader and chairman emeritus in March 2023, investors and the company’s board quickly soured on Narasimhan, a longtime PepsiCo executive.

Starbucks’ revenue dropped 2% in the first three months of this year, the first quarterly sales decline for the company since the end of 2020. The decline prompted a rebuke from Schultz, who wrote in a LinkedIn post this spring that company leaders should spend more time in stores and focus on coffee drinks to turn around flagging sales.

Revenue fell again the next quarter. A new summer drink with boba-like raspberry “pearls” drove strong U.S. sales, but the company had to pull back on marketing after it ran out of ingredients.

Andy Barish, an equity analyst at the investment bank Jefferies, said investors didn’t feel Narasimhan was effectively addressing Starbucks’ issues, including increasingly complicated operations for store employees and ineffective marketing. New products — like a line of energy drinks — were also lackluster, Barish wrote Tuesday.

Starbucks’ same-store sales — or sales at stores open at least a year — fell 2% between April and June. During the same period, same-store sales at Chipotle jumped 11%.

And when some customers began complaining on social media about what they thought were smaller portions at Chipotle, Niccol acted, saying that the company would retrain workers at the 10% of stores that were found making meals too small.

Elliott Investment Management, an activist firm with a significant stake in Starbucks, said it began talking about a change in leadership with Starbucks’ board two months ago. In a statement Tuesday, the firm called Niccol’s appointment a, “transformational step forward.”

“We welcome the appointment of Brian Niccol and we look forward to continuing our engagement with the board as it works toward the realization of Starbucks’ full potential,” Elliott Managing Partner Jesse Cohn and Partner Marc Steinberg said in a joint statement.

At Taco Bell, where Niccol started as chief marketing officer in 2011 and eventually transitioned to CEO, Niccol focused on menu innovation and introduced breakfast at the Mexican food chain. He upgraded restaurant cooking equipment and dining rooms and also introduced mobile ordering.

Starbucks Chairwoman Mellody Hobson — who will transition to lead independent director once Niccol becomes chairman — said Niccol can use the same playbook to transform Starbucks.

“Brian is a culture carrier who brings a wealth of experience and a proven track record of driving innovation and growth,” Hobson said in a statement. “Like all of us at Starbucks, he understands that a remarkable customer experience is rooted in an exceptional partner experience.”

Schultz said he has long admired Niccol.

“I believe he is the leader Starbucks needs at a pivotal moment in its history. He has my respect and full support,” Schultz said in a prepared statement.

Chipotle shares that have risen more than 20% this year fell 8% Tuesday on word of Niccol’s departure.

Chipotle said Tuesday that Scott Boatwright, the company’s chief operating officer, will become its interim CEO.

_____

CORRECTS that Schultz is a longtime leader at Starbucks but not a founder.

Originally Published: August 13, 2024 at 6:22 a.m.