Why Starbucks Needed to ‘Steal’ Chipotle’s CEO

Chipotle CEO Brian Niccol has just been poached by Starbucks. The coffee chain had a brutal earnings call last quarter and they were looking to make a splash and boy, have they. And yeah Macy, the impact has been felt. After the signing of Niccol we're seeing Chipotle stock falling 7.5% while Starbucks is going up by 24.5%. I mean, it's incredible. That means that Niccol is responsible for Starbucks best performing day ever on the stock market before he even started working there. I mean, it's starting to make a lot more sense that he's reportedly set to earn $113 million. Of course, this is all tied into performing bonuses, but this is a huge difference from the 22.5 million compensation package you got in 2023. Investors are excited to see what Niccol will do. Yeah, I mean, Niccol crushed it at Chipotle under his tenure he raised the stock by 770% he set himself apart from other CEOs and is a favorite among investors. I mean, yeah, they're even calling him the LeBron James of CEOs. Yeah. And hopefully he'll be able to use his magic to revamp Starbucks, which has not been doing so hot these days. All eyes will be on Niccol when he steps into the role September 9th. And Starbucks is a beast, much bigger than what Nichols is used to. Yeah, that's a good point. And some of the issues Niccol will have to tackle are familiar to him and things he's dealt with at other companies. But some issues even Niccol will have a hard time addressing. It's really tough to say if he'll be able to save Starbucks. These next few months will be interesting to watch for sure. Well, as a caffeine addict, and because I've been following Niccol's journey for quite some time now, I think I'll be able to pinpoint exactly what's up ahead for Niccol and the problems that he has to resolve. But first, let's order a drink. Its not. So I have been waiting...close to 7 minutes now. Okay. It's been a little over 10 minutes. Your cold brew. Ooh, that took a while. I know, right? Well, the time that I just waited for my mobile order is just an indication of one of Starbucks ongoing large issues. Starbucks stores were designed to be a third place, you know, a comfortable space outside your home or office where you can go to socialize, work and relax all while sipping from cups that occasionally had your name misspelled. This 'elevation for the brand' was part of the overall concept. Howard Schultz, had pushed for years. and while this concept worked up until recently, people's habits have changed since the pandemic. Many looked at Starbucks as a place to quickly grab their to go orders and then be well on their way. Meaning convenience was something that Starbucks had to prioritize more than ever. Schultz And his successor, Laxman Narasimhan changed the company's store designs, but failed to see it as a two part system. I'll get to what that means in a minute. There were store renovations, taking out chairs and tables at certain locations to free up space and new purpose defined stores. All this rework still fell short because clearly Starbucks baristas continue to get slammed with orders and customer mosh pits continue to pile up at these new stores. One report says people have waited anywhere between a minute to over an hour. Customer frustrations played a large part in sales, dropping 6% earlier this June. and with mobile app orders accounting for more than 30% of Starbucks sales this year, the bottom line is that Starbucks needs to get much better at streamlining its in-store operations with its mobile app. See two part system. This is probably a big reason why Starbucks brought in Brian Niccol, who successfully integrated digital platforms at previous companies when Niccol was at Chipotle. He implemented additional kitchen production lines that were dedicated to fulfilling just to go orders. And he also added Chipotlanes. Basically, digital order pickup lines. And these transactions are said to take less than 30 seconds. As Chipotle CEO, Niccol brought the company's digital sales revenue from 18% to 35%. And he continued to keep operations running smoothly, even with new product launches, like when Chipotle introduced Quesadillas back in 2021 by making them exclusively available through online orders, staff could prep them ahead of time. He took modernization even further in 2022 when Chipotle announced its collaboration with Hyphen, a startup that's trying to automate restaurant kitchens. Chipotle is currently in the middle of preparing major tech initiatives for new rounds of testing and expansion. But Niccol won't be able to see that through. Instead, he will be tasked with bringing in similar strategies to Starbucks. But again, this is just one piece of Starbucks problem pie. Another huge problem for Starbucks is within its second biggest market, China. Howard Schultz. Remember him? He once made the bold claim that China would become Starbucks his biggest market. And to be fair, it was positioned for that. Schultz forged relationships and opened the first Starbucks in China back in 1999, making it the first major coffee chain in the country. But alas, competition from foreign and local brands started popping up left and right, offering products at affordable prices as the country's economy has been slowing. And now Starbucks has lost almost half of its market share there. The company has tried lowering prices and offered coupons to remain competitive with the low and mid end of the market. But it just isn't sticking because Starbucks long standing strategy has been to market itself as a premium product. So what can the $113 million CEO do to fix Starbucks' China problem? Well, he could cut back on the company's capital spending and slow down plans of expansion or he could do what he does best. Which is giving companies brand makeovers to win over customers. When Niccol was at Taco Bell, he gave it a complete brand makeover that strayed far away from the previous ideas about the company. We saw campaigns like Live Mas and the Doritos Locos Tacos, which sold hundreds of millions within its first year. Which ultimately allowed Taco Bell to broaden its appeal as more than a low cost fast food chain. The marketing guru is also well equipped to turning around companies, going through crises. Remember when Chipotle was absolutely going through it, you know, when there were multiple E coli and salmonella outbreak between 2015 and 2018. There was a whole lot of uncertainty of how Chipotle could ever recover. But when Niccol took over, he was able to successfully shift consumer perception by launching a food safety program, improving food handling- like cooking in small batches for freshness and safety. We call it the Chipotle Way- Niccol is also known for getting customers in the door despite higher costs. Have you ever noticed Chipotle authorized six price increases since 2021? And even if you did, has that really stopped you from going there? Under Niccol, Chipotle was also one of the first companies to increase menu prices on delivery apps like Uber Eats and GrubHub. and despite online criticism over portion sizes and boycotts, That didn't stop Chipotle sales from going 8.4% last quarter. Actually Chipotle saw growth over every quarter since 2021. Compare that to Starbucks' same store sales in China that fell 14% in the most recent quarter. It's no wonder why Starbucks hopes that the 'LeBron James of CEOs' will be able to give it the brand lift that it so desperately needs. Now, being known as the 'LeBron James of CEOs' comes with a lot of pressure and high expectations. Of course, a CEO role usually comes with that. But, Niccol will be getting it from a lot of vocal cooks in Starbucks kitchen. For one Starbucks’ daddy, Howard Schultz, has never been afraid of publicly sharing his concerns about Starbucks. His looming presence and vocal opinions has haunted his CEO successors, and none probably had it worse than previous CEO Laxman Narasimhan. It hasn't been a great year for Starbucks. the company has not executed the way that I think it should have. Schultz just hasn't been able to keep himself out of Starbucks business. In the past, He stepped in three times as CEO to help the company out of its ruts. And as one restaurant analyst said, it's not easy to operate when you have a founder still in the shadows who is governing without any clear role within Starbucks. Luckily for Niccol, he will be acting as chair and CEO of Starbucks and is granted full autonomy running the company. However, he will also have to face other looming shadows. Activist investors have voiced their need for the tide to turn at Starbucks. And while they are probably a big reason why Niccol is at Starbucks now, that love for him is contingent upon whether he can bring up Starbucks' company value. Firms like Elliott Investment, who have taken a large stake at Starbucks, have a history of taking control over companies and aggressively pushing for major changes behind the scenes, especially in management shakeups. and while these activist investors have said that they're happy with Nicole for now, if he fails to bring up Starbucks' performance, well, then even he isn't safe. When Niccol started on September 9th, he sent out a press release outlining what his first 100 days would look like. It's clear he knows what he needs to do. So the $113 million question is can Brian Niccol actually save Starbucks? Niccol is definitely equipped to handle some of Starbucks biggest hurdles. But there are still other outstanding issues that he will have to face. Areas that for any CEO will be difficult. Starbucks is currently facing boycotts over its alleged ties to Israel. Although the company has repeatedly said that its alleged support of Israel is based off misinformation on social media and claims it has never given money to the Israeli government or military. Starbucks has acknowledged, though, that these boycotts have weighed on its sales, especially in the Middle East. Decrease in licensed store revenues largely resulting from the negative impacts to our business in the Middle East. On top of all that, Niccol is entering in the middle of heated negotiations between Starbucks and its unions, which spans across 400 Starbucks locations and accounts for roughly 10,000 employees. tensions have escalated in recent months, and Niccol doesn't necessarily have the best reputation when it comes to negotiating with unions. Back at Chipotle, he and the company received criticism for offering insulting wage increases to employees and if Niccol wants to fix Starbucks mobile online order operations here in the US. He'll need Starbucks union negotiations to go smoothly. The move to Starbucks is a huge step up for Brian Niccol’s career. It's basically like he's moving from the G League to the NBA. But the sheer size of Starbucks as a corporate entity is much, much larger than what Niccol is used to. So even though Niccol will be cashing in on a fat compensation package, getting full autonomy to run the business and writing cozy on private jets as he commutes to Starbucks headquarters. Only time will tell if he will be a superstar worth signing or a bust.