On Monday, September 9th, Former Chipotle CEO Brian Niccols will officially start his new job as the CEO of Starbucks. The stock has jumped 18% since the August 13th announcement.
After joining Chipotle in the middle of their food safety crisis, Niccol successfully guided the company to new heights. During his tenure as CEO, the company has added over 1,000 locations, streamlined the customer experience through mobile ordering, and solidified strong brand loyalty from its customers. In Niccol’s 6 years as CEO, Chipotle stock has skyrocketed nearly 800%.
Investors are expecting Niccols will have the same impact as Starbucks in the coming years. The coffee giant has been struggling with weaker sales in recent quarters, as it faces not only macroeconomic headwinds but also operational, branding, and product development challenges.
“Brian deeply understands brands, operations, and innovation, and has an enduring commitment to supporting the retail teams who serve customers in store,” Starbucks said in a statement on Friday. “We look forward to the fresh ideas that Brian will bring to our business.”
Analysts have pointed to 3 main factors that are key to a Starbucks turnaround, those include reclaiming brand identity, improving operations, and recruiting talent.
Reclaiming Brand Identity
In recent years Starbucks has struggled to maintain its flagship coffee brand. Founder and former CEO Howard Schultz always had the vision for the coffee chain to be the third place for social gatherings outside of work and home. However, of late the company has been focused on convenience, selling more through its mobile ordering system and drive-throughs.
Starbucks needs to reclaim the image of a premium coffee brand where human connections happen, analysts say. “Affordability is not how they win,” says Evercore ISI analyst David Palmer. “The $5 combo meal doesn’t seem to be the way out of a funk for a brand like Starbucks. They need to become a premium brand, but one that’s at scale.”
Years ago, Schultz launched the higher-end Reserve stores and Coffee Master program that trained baristas around the world to be experts in coffee knowledge. This helped prevent the firm from being pushed down to the middle rank by the smaller, premium brands, says Palmer.
“That’s the type of direction that Starbucks needs to go back to Do things that are on-brand and protect the premium positioning. Don’t chase adjacencies that may cheapen your brand or remind consumers of another company,” according to Palmer.
Currently, Starbucks is grappling with lost Gen Z customers as a result of miscommunications on the company's stance on the Palestine-Israel conflict and the consequential social-media boycotts. Niccol successfully revived Chipotle from its E.coli food safety crisis in 2015, and that experience gives investors confidence that he can do the same for Starbucks.
Historically, Starbucks hasn’t been a big marketer, with an annual budget smaller than its similar size peers. “They're under-penetrated,” TD Cowen’s Charles says. “Niccol got the opportunity to really lean into marketing and establish the brand identity.”
Niccols is a master at elevating brand identity and he should provide value at Starbucks as the company heads into the next pace of growth.
Improve Operations
As Starbucks puts more items on its menu with increasingly complicated customizations, it’s also facing operational challenges. Baristas complained about being overwhelmed by the amount of in-store and digital orders. The speed of delivery has slowed, and many customers abandoned their orders, frustrated by the long wait.
The company has been installing a new beverage-making station called Siren System in some stores, which could help baristas prepare cold drinks at a much faster speed.
The rollout might need to be accelerated, analysts say. Although the initiative will require investment and resources, Niccol should have the green light to do so even if it hurts earnings in the short term.
At Chipotle, Niccol successfully added a second make line in stores for digital orders only, which helped it remove a friction point as mobile orders became a bigger piece of its business. “I think Brian has the credibility and experience to do something big like that,” says Charles.
Niccols will likely streamline the menu at Starbucks to improve overall efficiency at all locations. Chipotle had continued success through a simple menu with a mix of limited-time and online offerings. Nichols noted that the limited-time Chicken Al Pastor played a large role in the company’s earnings beat last quarter. Likewise, digital offerings of quesadillas have boosted mobile ordering. Niccols could implement similar strategies to simplify the menu to drive sales and profits.
Starbucks Recruit Talent
Starbucks has had leadership issues for some time. Schultz retired in 2018 but returned in 2022 when Starbucks was facing heated inflation pressure and a growing unionization push from its baristas.
During his one-year tenure, Schultz played a key role in recruiting Laxman Narasimhan as the firm's next CEO. Despite extensive training, Narasimhan did not meet the board's and Schultz’s expectations, and he has publicly expressed dissatisfaction with Starbucks' current trajectory.
Palmer comments, “The company has frequently had to hire external replacements for Howard, which raises concerns about its ability to cultivate internal talent.”
Niccol is known for surrounding himself with exceptional talent and promoting their growth. At Chipotle, his strategic executive hires were crucial to the company's turnaround.
With his extensive industry experience, Niccol knows where to find top talent. “Brian Niccol understands people, and they want to work for him because he makes them feel heard,” Palmer adds.
Niccol will be working remotely from his office in Southern California while commuting to Starbucks' headquarters in Seattle. This arrangement is increasingly common in today's corporate environment and could help attract a broader range of talent, according to Silberman. Notably, in 2018, Niccol relocated Chipotle’s headquarters from Denver to Newport Beach, California.
Conclusion
Overall investors are excited for Niccols to start his tenure as Starbucks CEO. As he focuses on improving branding, operations, and the Starbucks executive team the company should start its next phase of growth. TD Cowen’s Charles estimates the market will give the new CEO 6 to 12 months to show improvement.
“The bear case for the stock has been extinguished over the next six months because investors are expecting him to make a plan,” he says. “People are not going to prioritize near-term results at this time.”
Wall Street has shown a lot of confidence in Niccol. A flurry of analysts significantly raised their target price for the stock after his appointment. “His track record just simply speaks for itself,” says TD Cowen analyst Andrew Charles, who has a target price of $110, a 21% upside from Friday’s close.
Lauren Silberman from Deutsche Bank, with a $118 price target, echoed that: “Brian is one of the best restaurant executives out there. I think his experience and the playbook, particularly at Chipotle, will help the turnaround for Starbucks.”
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