Starbucks replaces CEO after just 17 months, turns to Chipotle leader

Starbucks, struggling with weak demand and disgruntled investors, said Tuesday that CEO Laxman Narasimhan is stepping down after a little more than a year in the job.

The Seattle coffee giant said Brian Niccol, the chairman and CEO of Chipotle, will become the chair and CEO of Starbucks on Sept. 9. Shares of Starbucks Corp. soared more than 21 per cent in early trading Tuesday.

Narasimhan, a longtime PepsiCo executive who has also served as the CEO of Reckitt, a U.K.-based consumer health company, became the chief executive of Starbucks in March 2023. He succeeded Howard Schultz, the longtime Starbucks leader and chairman emeritus who came out of retirement in 2022 to serve as its interim CEO.

But the company's sales have weakened, and it has dealt with multiple issues, including competition from lower-cost competitors in China and boycotts in the Middle East and elsewhere due to its perceived support for Israel.

Starbucks stock has lost roughly 20 per cent of its value over the last five years as the broad-market S&P 500 has gained more than 80 per cent. In July, the company fell short of sales expectations due to weakening demand in the United States and China.

Barry Schwartz, chief investment officer at Baskin Wealth Management, told CBC News it was remarkable that Starbucks was able to attract a "superstar CEO," given the great challenges confronting the company.

"This is the kick in the pants that Starbucks needs because this is a dead brand and a dead stock, and has been for a long time," he said. "Last quarter's results were a disaster — growth in China slowing, the drinks are too expensive, the transactions and the volumes are slowing."

In May, days after Starbucks cut its annual sales forecast, Schultz wrote on his LinkedIn account that its U.S. operations were the "primary reason for its fall from grace" and that senior leaders need to spend more time with workers.

Revenue fell 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, Narasimhan said during a recent conference call with investors.

Credited for Chipotle growth

Activist investor Elliott Investment Management had pushed for major changes, but Mellody Hobson, the chair of the coffee chain's board of directors, told CNBC on Tuesday that Elliott was not consulted about the shakeup.

Hobson said in a statement that Niccol has transformed Chipotle since becoming its CEO in 2018 by focusing on menu innovation, operational excellence and digital transformation. Prior to that, Niccol was the CEO of Taco Bell.

"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."

Schwartz noted that the company didn't lure someone with coffee experience. Starbucks is "going to probably transform more into a food company, with better offerings," he said.

"I think what the the plan is to use some of the knowledge that Chipotle had to get such incredible same-store sales growth by continuing continually innovating and satisfying customers."

Chipotle's shares have risen more than 20 per cent so far this year, although they fell 12 per cent Tuesday morning on word of Niccol's departure. Chipotle named Scott Boatwright, chief operating officer, as interim CEO.