Starbucks He announced on Tuesday that CEO Lakshman Narasimhan replaced with Chipotle CEO Brian Nichol as the coffee chain tries to reverse a sales slump.
Starbucks shares rose 10% in premarket trading on the news, while Chipotle shares fell 10%.
Narasimhan’s departure is effective immediately. Rachel Ruggieri, Starbucks’ chief financial officer, will serve as interim CEO until September 9, when Niccol will officially assume the role.
Narasimhan took over as CEO in March 2023. The coffee giant’s performance has suffered this year, hurt by weak sales in the United States and China, its two biggest markets. In the most recent quarter, Starbucks reported a 3% decline in same-store sales.
Pressure has been mounting on the company as it struggles to attract shoppers to its stores. Former CEO Howard Schultz, who picked Narasimhan as his successor, wrote an open letter in May that weighed in on the company’s issues and offered advice but did not mention Narasimhan by name. Activist investor Elliott Management has taken a stake in the company in recent weeks.
Starbucks shares have fallen 21% during Narasimhan’s tenure, excluding Tuesday’s move.
Before joining Starbucks, Narasimhan was CEO of Reckitt, which owns brands such as Lysol and Mucinex. After being named the new CEO, he spent months learning about the Starbucks business, including training in making coffee.
Nicole has served as CEO of Chipotle since 2018. Prior to that, he led Yam Brands Taco Bell. As CEO of Chipotle, he helped the chain recover from a foodborne illness scandal and led its restaurants through the pandemic. In recent quarters, while other restaurants reported sharp declines in consumer spending, Chipotle saw its footfall and sales rise, reversing the trend.
Mellody Hobson, who stepped down as Starbucks’ chairman to become a senior independent director as part of the leadership changes on Tuesday, said the board had been considering replacing Narasimhan for several months.
“Our board started having a conversation a few months ago about leadership, and I made a pitch through someone to Brian, and he took the call,” Hobson said on CNBC’s “Squawk Box” on Tuesday. “We thought we had an opportunity to engage with one of the biggest names in the industry, someone who had a proven track record, not only with the incredible results he had at Chipotle, but also before that at Pizza Hut and Taco Bell. He knows the industry, and we thought he would be the right leader for this moment.”
Hobson acknowledged that Narasimhan faced some challenges entering Starbucks with no restaurant experience, but added that he helped reduce turnover and address supply chain issues. However, the board appears to have greater confidence that Nicol will be able to turn the business around quickly.
“But what we saw with Brian is someone who, quite frankly, has been there and done that — across all kinds of market environments, all kinds of cycles. When I talked to him I remember him saying, ‘I know what to do,’” Hobson said.
Narasimhan’s abrupt ouster also suggests that Starbucks’ board is not interested in striking a deal with activist investors. When news of Elliott’s stake in Starbucks first broke in July, the hedge fund offered Starbucks’ board a settlement that would have protected Narasimhan’s job, CNBC previously reported. Hobson said Tuesday that the board did not inform Elliott of its leadership change in advance.
Starbucks’ board initially did not respond or communicate with Elliott for some time, in part due to Schultz’s remaining influence. Elliott had raised a stake worth up to $2 billion. However, the two sides met as recently as last week to discuss a settlement offer, CNBC previously reported.
Chipotle’s COO Scott Boatwright will serve as interim CEO of the burrito chain. Chipotle’s CFO Jack Hartung, who had planned to retire next year, will now remain as head of strategy, finance and supply chain.
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