Starbucks CEO starts with venti expectations
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
By Jennifer Saba
NEW YORK, Aug 13 (Reuters Breakingviews) -What’s a good chief executive worth? Starbucks SBUX.O investors think the answer is $20 billion. That’s how much they added to the U.S. coffee chain’s market value on Tuesday after it named former Chipotle Mexican Grill CMG.N boss Brian Niccol as its new chief executive. There is much to like about Niccol as a potential savior, but he will find Starbucks a big challenge, with bigger personalities.
In some ways Starbucks is in a similar situation to Chipotle when Niccol took over the fast-casual restaurant operator in 2018. True, the burrito chain faced issues Starbucks doesn’t, such as an earlier food-poisoning outbreak. But like Niccol’s new employer, it was in dire need of smarter digital marketing, slicker customer service and better food. Chipotle’s shares had fallen roughly one-fifth over the year before Niccol arrived; since then they have increased almost ninefold.
Starbucks shares were up 20% on Tuesday, hitting a level they haven’t seen since March. Moreover, the stock was trading at 29 times next year’s earnings, based on LSEG estimates, back to its five-year average. That’s a strong signal that investors think lost ground can be made back.
The question is whether Chipotle really equipped Niccol for this new challenge. Starbucks is bigger than its Mexican-themed peer, with 11 times as many stores worldwide, and three times as many employees. Moreover, the company comes with some particularly tricky constituents. Activist investor Elliott Investment Management has been agitating for change, though said it supported the new pick. Another pushy firm, Starboard Value, has amassed a stake according to the Wall Street Journal.
Most challenging of all are the people who effectively gave Niccol the job. Former chief Howard Schultz, who grew Starbucks from its humble roots in Seattle, and Mellody Hobson, who has served on the board since 2005, were both involved in his selection, and both endorsed Niccol on Tuesday. Schultz retains the right to observe board meetings, and Hobson will remain as independent lead director. Both have presided over Starbucks losing its shine.
There’s some reassurance there too: Niccol took over Chipotle from its own founder, Steve Ells, and managed to stamp his own mark on it, even moving the company’s headquarters from Colorado to California. Ells at first kept the role of chairman, then in 2020 stepped back altogether. If Niccol can brew up a similar fresh start at Starbucks, investors’ optimism may be justified.
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CONTEXT NEWS
Starbucks on Aug. 13 named Brian Niccol as chair and chief executive officer, replacing Laxman Narasimhan. Niccol is currently the chair and CEO of U.S. restaurant operator Chipotle. He starts on Sept. 9.
Niccol was named CEO of Chipotle in 2018. Prior to that he was the chief executive of Taco Bell. He held leadership positions at Pizza Hut and Yum! Brands.
Mellody Hobson, Starbucks’ chair, will become lead independent director. Howard Schultz, Starbucks’ former long-serving CEO and chairman emeritus, said in a statement that Niccol has his “respect and full support.”
Chipotle has outpaced Starbucks under Brian Niccol https://reut.rs/4715eCZ
Editing by John Foley and Pranav Kiran
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