Starbucks named Chipotle Mexican Grill head Brian Niccol as its new CEO Tuesday in a management shakeup as it tries to fend off pressures from activist investor Elliott Investment Management.
Niccol replaces Laxman Narasimhan, who officially took over as CEO in April last year and was poached from Lysol maker Reckitt (RKT.L), opens new tab to undertake a "reinvention" of the world's biggest coffee chain.
But Starbucks stock has continued to suffer, losing roughly 20% of its value over the last five years when the broad-market S&P 500 has gained more than 80%. In July, the company fell short of sales expectations due to weakening demand in the United States and China.
Starbucks stock was up 21% in early trading on Tuesday and on track for its best day ever, erasing all of the losses for the year. Chipotle's shares were down 9%.
Elliott, which owns a sizable stake, has been pressuring the company to improve its performance and stock price, proposing Starbucks expand its board and improve governance. Elliott's offer was reported to be part of an effort to allow Narasimhan to keep his job as CEO.
When asked on CNBC if activist Elliott was consulted about the shakeup, Starbucks Board Chair Mellody Hobson said it had not been.
"We look forward to engaging with all of our shareholders about this new development," she said.
It is unclear what will happen with negotiations with Elliott.
Elliott Management did not respond to Reuters' request for comment. The activist hedge fund was seeking to add Jesse Cohn, an equity and managing partner in the firm, to the Starbucks board, Reuters reported Monday, citing sources.
In May, days after Starbucks cut its annual sales forecast, former CEO Howard 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.
ANTI-UNION
Niccol told Yahoo Finance that he's “disappointed” that a restaurant in Michigan decided to unionize, the first to do so in the chain.
On August 25, a Lansing Chipolte store unionized via a 11-3 vote and two contested ballots. “I was disappointed to see that happen,” Niccol said.
“I really don't think we need a third party to get between our restaurant teams and our company,” Niccol said. “We do a better job of communicating directly with our employees on what it takes to be successful at our company, what it takes to have a great work environment, and what it takes to provide a great customer experience.”
Nevertheless, Niccol said he would sit down to bargain with the new members of the Teamsters Local 243. “Obviously, we'll go through the process that we need to," he said.
Niccol inherits several challenges at the coffee giant, which recently tweaked its model to focus on mobile pickup and delivery orders rather than cafes set up for long visits. In China, Starbucks has encountered competition from rivals discounting coffee prices, while its cafes in the Middle East have been subject to some pro-Palestinian boycotts amid the Israel-Hamas conflict.
"(Niccol is) going to turn the company around. It will be a little bit of a heavy lift for the first few quarters, but Niccol (has) proven what he can do at Chipotle," said Thomas Hayes, chairman at Great Hill Capital.
'A FIXER AND A DOER'
"This guy is a fixer and a doer and an executor," Hayes said.
Niccol joined Chipotle in 2018 from Taco Bell and has seen the company's annual sales more than double to nearly $10 billion. In its most recent quarter, quarterly results topped Wall Street estimates on strong demand.
Starbucks said Niccol will start in his new role on Sept. 9 and that CFO Rachel Ruggeri will serve as interim CEO until that time.
Chipotle said its board had appointed Scott Boatwright, chief operating officer, as interim CEO.