Starbucks(NASDAQ: SBUX) shocked investors last month with the announcement that it had hired Brian Niccol away from the top spot at Chipotle Mexican Grill to take over as CEO. Starbucks has been dealing with slowing growth and declining comparable sales, and its previous new CEO, who had been on the job for less than a year, was still asking for time. The board didn't want to give him more time as the stock price sagged and pressure mounted, and it aimed for the best.
Niccol starts at Starbucks this week. Let's see what could happen and how quickly he can turn Starbucks around.
Why Starbucks snagged Niccol
Niccol has earned a well-deserved reputation as one of the best restaurant CEOs, maybe even the best, in the business. That mostly comes from an excellent track record turning around Chipotle, but he had a great track record before that as a leader of Yum! Brands' Taco Bell, which got him the job at Chipotle. At the time, Chipotle founder Steve Ells praised his expertise in "digital technologies, restaurant operations, and branding" as the reason he had confidence in Niccol's ability to turn around Chipotle. He had done the same thing prior to that for Taco Bell, transforming it into a "lifestyle brand" and prioritizing digital ordering and social media.
Chipotle was in a pickle when he landed there. It had been managing through several crises of e-coli breakouts in its food, turning off diners and sending the stock price down. Chipotle stock had plunged 21% in the year before Niccol got there. It has gained 733% since he took over in 2018.
Niccol was able to identify how to change operations to stop the breakout and improve the company's image. The things Niccol focused on at Chipotle aren't significantly different from what Starbucks has been trying to do: digital development, matching store capabilities to demand, product innovation, expanding brand awareness, the membership program, and a strong work culture. What he brings to the table is experience in figuring out what works, and he can make the bold moves necessary for a Starbucks turnaround, like he's done before.
What he might do at Starbucks
Something Niccol will have to do from the start is define Starbucks' brand. He won't have a lot of time to do that if he wants to hit the ground running with operational changes and marketing efforts. But clear action plans are his forte, and he has a knack for understanding what differentiates his companies. At Chipotle it was fresh and healthy ingredients and an upscale vibe. He isn't likely to change the image at Starbucks too much; it's already a loved brand. It needs more operational changes that match its image. This is where he can shine.
What Niccol identified as most important, which might have been lacking at Starbucks, is the development of store managers who are trained in the company's culture and are responsible for operations that reflect it. He said that "The most foundational ingredient of having a successful restaurant company [is] operational excellence, which comes from great leaders building great teams who create equally great guest experiences."
Niccol added that "The general manager is the most important position to improving operational health and ensuring a great customer experience."
Training top general managers could result in a quick trickle downward to overall management. However, there's a lot to fix at Starbucks, both with workers and in general. Worker satisfaction is one of its biggest problems right now, and there have been several unionization efforts. Starbucks is also a lot bigger than Chipotle. It has more than 10 times Chipotle's restaurant count at 39,000, and it has 381,000 workers vs. 120,000 at Chiptole. This is a new frontier for Niccol, but the similarities are strong enough to inspire confidence in his capabilities.
Expect a lot of talk, for now
Unless Starbucks gives an unexpected update, investors won't get to hear Niccol's plan or how it's going until the 2024 fiscal fourth-quarter report in late October or early November. That gives him time to develop and implement a strategy. He'll have been in the leading role for about two months at that point, but the Q4 report is for the period ending Sept. 30 and won't include much of his leadership. However, he should be able to tell investors what he's doing and how it's going.
Q1 2025 will already be fully under his tenure, and investors should expect a major update with lots of strategy and operational changes at that point. The outgoing CEO had a full year of training, traveling around the country to meet with workers and check out stores. Niccol won't have that, but he likely doesn't need it.
How fast can investors expect to see results? It's going to take more than a quarter or two for the results to come in. But after that, expect some tangible demonstration of progress. As a side note, if the Federal Reserve lowers interest rates this month as expected, that should boost the economy all around and positively impact Niccol's efforts.
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Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chipotle Mexican Grill and Starbucks. The Motley Fool recommends the following options: short September 2024 $52 puts on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.
