Brian Niccol, CEO of Chipotle
Anjali Sundaram | CNBC
Wall Street believes Brian Nichol is the right choice to turn around Starbucks — and move the chain beyond the decades-long Howard Schultz era.
Starbucks Starbucks announced the appointment of Niccol as its newest CEO and chairman on Tuesday. Niccol replaces Lakshman Narasimhan, who took over the top job in March 2023 after being tapped by former CEO Schultz. Starbucks has reported declining same-store sales in the past two quarters as its U.S. business has faltered. Once he takes over, Niccol will be tasked with reviving demand for the company’s coffee.
“In our view, Starbucks is acquiring a well-known restaurant CEO, and his appointment as CEO and chairman of Starbucks signals the beginning of a new era,” Andrew Charles, an analyst at TD Cowen, wrote in a note to clients, emphasizing the importance of the combined role.
Investors are confident he can revive the company. Starbucks shares rose 20% in afternoon trading on the news, putting them on track for their best day since the company went public in 1992. Chipotle shares, meanwhile, fell 9% as shareholders grumbled about the loss of their longtime CEO.
Piper Sandler, T.D. Cowan, and Baird upgraded Starbucks shares in wake of leadership changes.
Other analysts wrote positively about Nicol, seeing him as the right person to address Starbucks’ slowing sales. A tough consumer environment, deteriorating customer experience, and increased competition from smaller coffee shops have hurt the chain’s performance recently.
“We view this as a dream hire for SBUX, and we can’t think of a leader better equipped to take a fresh look at SBUX’s operations, competitive position and overall strategy,” said Oppenheimer analyst Brian Bittner.
End of an era?
Nicole's appointment could mark the end of Schultz's outsized influence over the company he built into a global coffee giant.
“The important thing is that Bryan is probably the only restaurant executive with the clout to address the ‘backlog’ left behind by founder Howard Schultz,” wrote Evercore ISI analyst David Palmer.
Schultz served as CEO from 1986 to 2000, 2008 to 2017 and 2022 to 2023, twice stepping in to rescue the company when sales slumped. His recent return has raised concerns about the company’s succession.
At the end of his last term, he vowed he would never return to the CEO role again, though his presence still looms large over the company. In May, after a tough quarter for Starbucks, he wrote an open letter on LinkedIn about the challenges the company faces and offered advice to its leaders—without naming Narasimhan.
Even after his retirement, Schultz’s involvement in the company “has remained a question hanging over the stock,” Morgan Stanley analyst Brian Harbour wrote in a note Tuesday. Mellody Hobson, who stepped down as Starbucks’ chairman to become a lead independent director as part of a leadership reorganization Tuesday, said on CNBC’s “Squawk Box” that she told Schultz about the discussions with Nicole and kept him informed even though he no longer has a formal role within the company.
Schultz also remains a major shareholder in Starbucks, with a stake of about 2%.
Schultz endorsed Nicole's appointment in the press release announcing the changes. In a statement, the chairman emeritus said he believes Nicole is the leader the company needs at “a pivotal moment in its history.”
Some analysts believe that having Nichol, a veteran restaurant executive, in the driver’s seat could mean that Schultz will finally move on to another role. Nichol will also succeed Hobson as chairman, giving him more freedom to make changes.
“This will be the last time investors care about what he says because Nicol now has the wheel and there is no longer any room for a backseat driver,” wrote analyst Don Belson at Gordon Haskett.
Niccol also has previous experience taking over a founder-led brand and making it his own. When he joined Chipotle in 2018, he took the reins from founder Steve Ells, who had led the chain since 1993. Niccol moved the burrito chain’s headquarters from Denver to Newport Beach to attract different talent — and potentially evolve the brand from being founder-led, Bernstein analyst Danilo Gargiulo wrote in a note.
Challenges ahead
While analysts largely welcomed Nichol's appointment, some were more cautious, noting that Starbucks is a larger and more complex company than Chipotle.
“Starbucks is a much more complex model than Chipotle, with a company, franchised stores, domestic and international locations, and a large presence in struggling China,” wrote analyst Peter Saleh of BTIG.
Chipotle has few franchised locations, except for some airport restaurants, and has a relatively small international presence, though Niccol's has been pushing to expand its presence outside the United States in recent years.
On the other hand, Starbucks has more international stores than it does in the U.S. While investors have recently focused on the chain’s domestic performance, China, its second-largest market, has continued to struggle as competition there mounts and the country’s economy lags.
Narasimhan said on the company’s most recent conference call that he was exploring “strategic partnerships” for its business in China, which could include a joint venture, technology partnership or other options. The appointment of Nichol could mean Starbucks abandons that exploration, though he has some experience with subsidiaries from his time as CEO. Yam Brands Taco Bell. While there, the company pivoted its business in China to China right.
While demand for Chipotle’s burritos remains strong, consumer economic concerns have reduced their appetite for coffee, which could be a tougher hurdle for Nicole than investors expect.
“The challenge is connecting with a new customer,” said Nick Setian, an analyst at Wedbush. “Apart from the ability to change the direction of macroeconomic headwinds, we see the shareholder euphoria (as expressed by the stock price this morning) as premature.”
