(Bloomberg) -- Newly appointed Starbucks Corp. Chief Executive Officer Brian Niccol is taking over a company in crisis. The coffee chain on Tuesday ousted its previous leader after he failed to revive a flagging business and assuage board members and the ever-present Howard Schultz.
Niccol, who orchestrated a remarkable turnaround at Chipotle, will have to contend with inflation-weary consumers forgoing $6 iced lattes and staffing changes that have angered once-loyal customers. On top of that, activist investors Elliott Investment Management and Starboard Value have been circling, and three-time former CEO Schultz has been both publicly and privately griping about the business.
Schultz not only has posted multiple critical missives on LinkedIn, but often emails the entire executive team with leadership or business advice, according to a person familiar with the situation. His messages in recent months have become more critical, scrutinizing the company’s stock price, menu offerings and even its marketing campaigns, the person said.
Niccol “will have the wheel,” said board chair Mellody Hobson in an interview with CNBC on Tuesday. “Let me make that extraordinarily clear, that he will be the one who will drive the strategy.”
Schultz didn’t immediately respond to a request for comment. Starbucks didn’t comment beyond its statement.
The list of potential issues for Niccol to tackle is long. Starbucks is bleeding customers who no longer want to shell out for high-priced coffee drinks. The once-consistent in-store experience has also deteriorated: Wait times have ticked up and customers are abandoning online orders. China’s weaker-than-expected economy is also a concern, as is the company’s ongoing negotiations with its unionized workers.
“Niccol needs to come in and first focus on that internally to say, ‘Hey look, I’m the CEO, I’ve been successful at turning around businesses before and I’m going to do this again here,” said Bill Campbell, director of research at Paragon Intel.
Starbucks hasn’t had a deep bench of leaders groomed to be CEO, forcing it to look outside its ranks or to Schultz, who has twice come back from retirement to take the job.
When Schultz announced Laxman Narasimhan’s appointment in September 2022, he praised him as a “a strategic and transformational leader with deep experience in building powerful consumer brands.” For six months before stepping down, Schultz personally trained Narasimhan to execute his long-term vision of growing in the US and China. He mentored Narasimhan, as he met with workers and earned his barista certification.
But he left Narasimhan with a difficult task. Just before heading out the door as CEO, Schultz set ambitious goals for sales and profits. That created high expectations from investors for Narasimhan, who had no experience running a restaurant company, to achieve.
In his short tenure as CEO, Narasimhan championed a push for efficiency to help cut costs and boost sales, but he didn’t fully execute on Schultz’s vision. For one, he approved a negotiation for the Starbucks union — a group Schultz had aggressively opposed. Meanwhile, Schultz’s growth plans hadn’t come to fruition, either. Earlier this year, the coffee chain posted its first sales decline in about four years.
After that, what had been private involvement from Schultz, became a public show of disappointment. In a LinkedIn post he told the company not to make “excuses” and “own the shortcoming.” He said Starbucks needed to improve its stores with a “maniacal focus on the customer experience.”
In Niccol, a longtime restaurant executive, Schultz may be getting someone who can achieve that.
“His retail excellence and track record in delivering extraordinary shareholder value recognizes the critical human element it takes to lead a culture and values driven enterprise,” Schultz said in a Tuesday statement. “I believe he is the leader Starbucks needs at a pivotal moment in its history.”
After turning around sales at Taco Bell, Niccol joined Chipotle as the chain faced backlash from food safety issues and activist pressure from Bill Ackman. Taking over for founder Steve Ells, Niccol focused on improving efficiency for delivery without compromising in-store ordering. He also had to manage his own union drive. Like Schultz, he took more of an anti-union stance, saying he “was disappointed” when workers voted to unionize and allegedly shutting down a store that organized.
“Brian is likely the one restaurant executive that has the gravitas to address the Howard Schultz Founder ‘overhang,’” said David Palmer, an analyst at Evercore ISI, in a note to clients.
--With assistance from Crystal Tse.
©2024 Bloomberg L.P.
