Unlock Editor’s Digest for free
FT editor Roula Khalaf selects her favourite stories in this weekly newsletter.
The coffee grounds have settled on the Starbucks boardroom drama and a victor has emerged. Greetings, Howard Schultz.
In A major restructuringThe Seattle-based coffee giant has named current Chipotle boss Brian Niccol as its new chief executive. He will replace Laxman Narasimhan, who is leaving immediately.
Niccol is highly valued for Chipotle’s turnaround, and his appointment should (at least temporarily) calm Elliott Investment Management’s ambitions. The activist, who owns a stake in Starbucks, had been in talks with Narasimhan.
The one who appears to be the winner is Schultz: the former chief executive, majority shareholder and vocal critic of Narasimhan had opposed any deal with Elliott. The fact that Niccol’s appointment was not discussed with Elliott (but had Schultz’s full support) suggests that the former may have been outmanoeuvred.
The market made its feelings clear. Starbucks shares rose nearly 23 percent, erasing their losses for the year, while Chipotle shares fell more than 13 percent.
That, in part, reflects Niccol’s tenure at Chipotle. Since he took the helm in March 2018, the Mexican-inspired chain’s sales have more than doubled to nearly $10 billion last year. Profits have jumped 600 percent. Even accounting for Tuesday’s drop, those who bought Chipotle stock after Niccol’s appointment would have made a gain of 873 percent.
Your experience should easily translate to Starbucks. Problems in the United States:Lack of staff, customer frustration over long wait times and tired-looking stores are execution issues rather than demand issues. They can be overcome: Starbucks needs to invest in staff and improve the operations and efficiency of its stores.
The company’s problems in China, its second-largest market, are deeper, however. Competition from foreign and local brands is tough, while the economy is slowing. Revenue at its 7,306 Chinese stores fell 11 percent in the fiscal third quarter through June.
For Niccol, the quick fix might be to put the brakes on expansion plans in China. Starbucks has more than doubled its number of stores there in the past six years. BTIG analyst Peter Saleh estimates that Starbucks has been spending more than $400 million a year — or 20 to 25 percent of the company’s capital spending — to expand.
Fixing Starbucks won’t be as easy as fixing Chipotle. The coffee chain is much larger, with 39,477 locations worldwide. Chipotle has just 3,530 locations, mostly in the United States.
But Niccol’s appointment will buy the company some time to begin addressing its U.S. problems and reducing its presence in China. But his task comes with another complication: a barista who just scored what looks like a victory.