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Starbucks has ousted chief executive Laxman Narasimhan, replacing him with Chipotle’s Brian Niccol, as the world’s largest coffee chain responds to falling sales and pressure from an activist investor, unionised baristas and its former boss.
Narasimhan is stepping down immediately, while Niccol will leave burrito chain Chipotle Mexican Grill at the end of this month and start his new role on September 9, Starbucks said on Tuesday. Chief financial officer Rachel Ruggeri will run the company in the interim.
Niccol’s appointment sparked sharp share price reactions at both companies, with Starbucks rising a record 24.5 per cent and Chipotle falling 7.5 per cent in New York.
The abrupt swap comes less than two years since Starbucks hired Narasimhan from UK-based consumer products company Reckitt, and makes Niccol the fourth chief executive in four and a half years.
The Starbucks board made the decision to oust Narasimhan after it came under attack from activist investor Elliott Management and Howard Schultz, who spent three stints as the company’s leader, publicly criticised the management’s strategy.
Narasimhan oversaw Starbucks’ first decline in comparable sales since 2020. Schultz, who built the Seattle coffee bean supplier into a global coffee shop brand, had publicly criticised the chief executive and privately expressed his opposition to a settlement with Elliott. The activist investor had been holding talks with the chain over a number of demands, including board representation, the Financial Times reported previously.
People close to Starbucks said the change at the top should settle the talks with Elliott. However, people close to the investor said it had made no definitive decision regarding board representation but looked forward to engaging with Niccol once he takes up the role.
Mellody Hobson, the chain’s longest-serving director, told CNBC on Tuesday that the board had begun a conversation about replacing Narasimhan in recent months. “I made an overture through someone to Brian and he took the call,” she said.
Elliott, which controls a sizeable minority stake, said it had engaged with the board for two months “regarding our perspectives on the company’s key issues” and described the CEO change as “a transformational step forward”.
As part of the changes announced on Tuesday, Hobson, who has called Schultz a close friend and has served on the board for 19 years, will be replaced as its chair by Niccol and become lead independent director.
“[Niccol] has my respect and full support,” said Schultz, who is the company’s biggest independent shareholder and retains board observer rights and other perks, in a press release issued by Starbucks. “I thank Mellody and the Starbucks board for their deep commitment to shaping the future of this remarkable global phenomenon that is Starbucks.”
Niccol took over as Chipotle’s CEO in 2018. Since then the burrito chain’s revenue has nearly doubled and its stock price has increased nearly 800 per cent, Starbucks noted in its announcement of his appointment. Chipotle’s sales increased by double digits in its latest quarter at a time when many other fast-food chains’ sales declined.
Narasimhan late last year rolled out a long-term strategy called “Triple Shot Reinvention with Two Pumps”. The plan included adding thousands of new cafés, doubling the number of members in its rewards programme and cutting billions of dollars in costs.
This year he unveiled a more short-term “action plan” for the more than 9,000 US cafés which featured fixing up stores and launching new products, such as a cool summer berry drink with flavoured pearls. The chain also increased promotions and deals to boost customer traffic.
Starbucks’ share price has fallen about a fifth since Narasimhan took over from Schultz. Comparable sales fell in each of the past two quarters as inflation-weary consumers balked at the price of its drinks. China, a crucial growth market, has been a particular challenge as the economy slows and competitors make inroads.
Starbucks has also struggled with the effects of boycotts against western brands over Israel’s war in Gaza. A barista labour union that organised under Schultz has been pushing for higher pay and better work conditions as it negotiates a first contract at the chain’s cafés.
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