Brian Niccol: Starbucks’ new CEO delights investors

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The share price had already marked the way, and so no one was surprised when Starbucks fired its CEO Laxman Narasimhan on Tuesday. For many investors, the removal of an old, unsuccessful CEO is already a buy signal. But the fact that Starbucks’ share price rose by 25 percent on Tuesday was mainly due to Narasimhan’s successor: investor favorite Brian Niccol, previously head of the restaurant chain Chipotle.

If you’re a German and want to understand why the markets reacted so enthusiastically, you don’t even have to travel far. A visit to Frankfurt’s Skyline Plaza shopping center is enough. One of two Chipotle branches in Germany is located there – and anyone who wants to order there often has to wait in line for more than 20 minutes. A few meters away, however, in the nearest Starbucks, there is not much going on these days. Apparently, customers would rather pay 14.80 euros for a full, healthy burrito than seven euros for a coffee with a cool logo. Starbucks’ coffee was never the best, and Starbucks knew that too. But what got Starbucks through many crises was its brand strength.

Until consumers suffered three years of real wage losses caused by inflation in many parts of the world. Customers are now more price-sensitive and look for where they can get the best for their money. And the best often means a lot, high quality and long-lasting. In other words: Chipotle, which delights many US citizens with its healthy Mexican cuisine – in places where the chain has recently grown particularly strongly.

While Chipotle’s market value has grown by 24 percent since the beginning of the year, Starbucks’ has fallen by 18 percent. Recently, Chipotle was trading almost like a luxury stock, with the stock priced at a price-earnings ratio of 50. Even hot technology stocks like Nvidia, Microsoft and Co. appear moderately valued next to Chipotle.

Narasimhan failed to get Starbucks out of the crisis

The man behind Chipotle’s success is Brian Niccol and will take over at Starbucks on September 9th. Until then, interim CFO Rachel Ruggeri will step in, while Narasimhan must leave the company immediately. Niccol has a lot of work ahead of him that his predecessor left him. Under Narasimhan, Starbucks has recently missed almost every Wall Street expectation. The sales forecast for this year has already had to be lowered twice. This led to trust in Narasimhan crumbling bit by bit. Starbucks patriarch Howard Schultz recently even publicly criticized the state of the company. On the career network Linkedin, he wrote that the company had “fallen from grace” and “The answer lies not in the data, but in the stores.” He appealed for the stores to focus more on the customer experience.

What Schultz means was Narasimhan’s strategy of making Starbucks more and more efficient. The focus was on shorter waiting times, faster payment, cheap purchase prices, smooth logistics, etc. Narasimhan acted like a reorganizer and restructurer, and less like a product manager. This type of manager is in demand from time to time because it brings short-term returns. But in many places the concepts do not work in the long term. The most recent example is sportswear manufacturer Adidas, which initially performed well under financier Kasper Rorsted until the product pipeline dried up under the maxim of efficiency. Only since the new CEO Björn Gulden, an avowed product manager, came on board, has things been running smoothly again. True to the motto: you have to put something in at the top so that something comes out at the bottom.

Starbucks patriarch Howard Schultz is now hoping for this effect with Brian Niccol. The 49-year-old has many years of experience in the restaurant industry. After working at Pizza Hut and Taco Bell, he became CEO of Chipotle in 2018. In a statement from Starbucks, it is said that his “focus on people and culture, brand, menu innovation, operational excellence and digital transformation” has set new standards in the industry and led to significant growth and value creation. In other words: Niccol wants to improve the product. And if the product is good, sales and efficiency come naturally.

In fact, under Niccol, Chipotle’s sales have almost doubled and profits have increased almost sevenfold. In addition, the share price has risen by almost 800 percent under his leadership. The extent to which investors associate Chipotle’s success with Niccol was shown by the share price on Tuesday. It fell by almost twelve percent at its peak.

Starbucks patriarch Schultz, meanwhile, is optimistic. He welcomes Niccol with the words: “I believe he is the leader Starbucks needs at a crucial time in its history. He has my respect and full support.”