Brian Nicol, Chipotle CEO
Anjali Sundaram | CNBC
Wall Street believes Brian Nicol is the right choice to turn around Starbucks and steer the chain away from the decades-long Howard Schultz era.
Starbucks Nicol was named its newest chief executive and chairman on Tuesday. Niccol succeeds Laxman Narasimhan, who was handpicked by former CEO Schultz to take over the top job in March 2023. Over the past two quarters, Starbucks has reported declines in same-store sales as its U.S. business struggled. Once he takes over, Nico will be responsible for restoring the company’s coffee needs.
“We believe the appointment of a Hall of Fame restaurant CEO as CEO and chairman of Starbucks is a sign that a new era is dawning,” analysts at TD Cowen said. Andrew Charles wrote in a note to clients stressing the importance of merging roles.
Investors are confident he can revive the company. Affected by this news, Starbucks shares rose 20% in afternoon trading, and it is expected to usher in the company’s best day since its IPO in 1992. Condolences on the death of the CEO.
Piper Sandler, TD Cowen and Baird all upgraded Starbucks stock following the leadership change.
Other analysts have praised Nicolás as the right person to address Starbucks’ sluggish sales. A challenging consumer environment, deteriorating customer experience and growing competition from smaller coffee shops have hurt the chain’s performance recently.
“We believe this is an ideal hire for SBUX and cannot think of a more capable leader to reexamine SBUX’s operations, competitive positioning and overall strategy.
The end of an era?
Nicol’s hiring could also spell the end of Schultz’s outsized influence over the company he built into a global coffee giant.
“Importantly, Brian may be the only restaurant executive capable of resolving founder Howard Schultz’s ‘hanging’ issues,” Evercore ISI analyst David Palmer wrote.
Schutz served as CEO from 1986 to 2000, 2008 to 2017, and 2022 to 2023, twice rescuing the company when sales were weak. His final return raised concerns about his successor at the company.
At the end of his final term, he vowed not to return as CEO, although his presence remains central to the company. In May, after Starbucks experienced a brutal quarter, he wrote an open letter on LinkedIn describing the challenges facing the company and offering advice to company leaders, without naming Narasimhan.
Even after retirement, Schultz’s involvement with the company remains “an open question,” Morgan Stanley analyst Brian Harber wrote in a note on Tuesday. Mellody Hobson resigned as Starbucks chairman to become lead independent director as part of a leadership shakeup on Tuesday, he told CNBC Squawk Box said she told Schultz about discussions with Nicole and kept him informed, even though he no longer has an official role at the company.
Schultz remains a major shareholder in Starbucks, holding about 2% of the shares.
Schultz supported Nicol’s hiring in a press release announcing the shake-up. The honorary chairman said in a statement that he believed Nicol was the leader the company needed at “a critical moment in its history.”
Some analysts believe putting veteran restaurant executive Nicol at the helm could mean Schultz eventually moves on. Nicol will also succeed Hobson as board chairman, giving him more freedom to make changes.
Gordon Haskett analyst Don Bilson wrote: “This will be the last time investors care about what he has to say, as Nicol is now in control of the wheel and no longer has any Space for rear-seat drivers.
Nicole also has previous experience taking over founder-led brands and making them her own. When he joined Chipotle in 2018, he took over leadership from founder Steve Ells, who had led the chain since 1993. The headquarters was moved from Denver to Newport Beach to attract diverse talent and perhaps allow the brand to evolve from one led by its founder. Written in a report.
future challenges
While analysts mostly welcomed Nico’s appointment, some were cautious, noting that Starbucks is larger and more complex than Chipotle.
“Starbucks has a much more complex model than Chipotle, with corporate and franchised stores, domestic and international locations, and a significant presence in troubled China,” BTIG analyst Peter Saleh wrote.
Although Nicol’s has been trying to expand its presence outside the U.S. in recent years, Chipotle has few licensed locations aside from a few airport restaurants and its international footprint is relatively small.
Starbucks, on the other hand, has more international stores than American coffeehouses. While investors have recently focused on the chain’s domestic performance, its second-largest market, China, continues to struggle due to increased competition and a lagging economy.
Narasimhan said on the company’s latest conference call that he is exploring “strategic partnerships” for its China operations, which could include joint ventures, technology partnerships or other options. Nicholl’s appointment could mean Starbucks abandons that exploration, although he does have some experience with spin-offs during his time as head of Starbucks. Yum Brands Taco Bell. During his tenure, the group divested its China operations to Yum China.
While Chipotle’s burritos remain in high demand, consumers’ concerns about the economy have tempered their desire for coffee. For Nico, this may be a tougher hurdle than investors expect.
“The challenge for him is to connect with new customers,” said Wedbush analyst Nick Setyan. “Apart from the forces changing the direction of macro headwinds, we think shareholder excitement, as expressed in the share price this morning, is premature. Too early.”
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