Six points Brian Niccol should repair at Starbucks as he takes over as CEO

Brian Niccol steps in as CEO of Starbucks on Monday, taking up because the espresso big’s gross sales stoop and inventory worth falls.

Starbucks tapped Niccol in August to take over from Laxman Narasimhan, who held the place since March 2023. Niccol had served as chief government of Chipotle Mexican Grill since 2018, turning across the fast-casual chain after a sequence of foodborne sickness outbreaks and main it via the pandemic. Earlier than Chipotle, Niccol was CEO of Taco Bell, which Yum Brands owns.

On the day that Starbucks announced Niccol’s appointment, shares of the espresso big soared greater than 24%, the most effective day ever for the inventory. Wall Street analysts also cheered the news, calling him a “dream rent” and a “corridor of fame restaurant CEO.”

“Brian deeply understands manufacturers, operations and innovation, and has a permanent dedication to supporting the retail groups who serve clients in retailer. We look ahead to the contemporary concepts that Brian will convey to our enterprise,” a Starbucks spokesperson stated in a press release to CNBC.

Niccol comes from a advertising background and began his profession at Procter & Gamble. He then moved to Yum Manufacturers in varied advertising positions earlier than ascending to steer Taco Bell. That advertising experience was helpful when he joined Chipotle and can seemingly additionally show invaluable at Starbucks.

However as he takes over Starbucks, Niccol is coping with a bigger and extra complicated enterprise than Chipotle. The burrito chain’s gross sales reached $9.9 billion final yr; Starbucks had $36 billion in income in fiscal 2023. And whereas the overwhelming majority of Chipotle eating places are within the U.S., greater than half of Starbucks cafes are exterior of North America.

Turning across the sprawling Starbucks enterprise will not be simple.

Niccol is predicted to share extra particulars about his plans for the chain on the corporate’s fiscal fourth-quarter earnings name, which is able to seemingly happen on the finish of October.

Listed below are the six issues that Niccol wants to repair at Starbucks:

Like most restaurant chains, Starbucks has been climbing its costs in recent times in response to inflation. Final yr, it seemed as if the espresso big was in a position to escape the identical client worth sensitivity that was hitting different restaurant firms, like Outback Steakhouse proprietor Bloomin’ Brands.

Nevertheless, the final two quarters have proven that Starbucks clients are pulling again. Executives have stated they’re shedding occasional clients, who’re in search of out worth as an alternative. These shoppers can reduce Starbucks espresso out of their budgets and as an alternative get their caffeine repair at residence or from rivals with cheaper drinks, like Dunkin’ or McDonald’s.

This summer season, Starbucks has been making an attempt to convey again clients by leaning on promotions, like half off any personalized drink on Fridays. However reductions can eat into earnings, making it tough for eating places to search out the fitting stability.

As CEO, Niccol should determine methods to decrease costs — or persuade shoppers {that a} latte is value $6.

The baristas main the cost to unionize had been youthful and vocal about sharing their views on social media. The union combat additionally led to different controversies, like arguments over retailer managers removing Pride decorations or confusion in regards to the firm’s stance on Israel’s offensive in Gaza, which led to a boycott.

Earlier this yr, Starbucks Staff United and the corporate defrosted their relationship and resumed contract negotiations. However many youthful shoppers now have a unique picture of the corporate, creating an id disaster for the model that Niccol and his crew might want to resolve.

Cellular orders account for roughly a 3rd of Starbucks’ U.S. orders. At many Starbucks areas, although, it looks like they’ve fully taken over, frustrating customers and baristas alike.

Chipotle noticed the rise of digital ordering early, investing in secondary meeting strains devoted to on-line orders and different methods to maintain operations environment friendly. However Starbucks hasn’t made the identical investments, leading to operational points and a worse buyer expertise. It has been rolling out new tools that can automate some drink-making duties, however the course of has been gradual.

On their face, digital orders supply clients a extra handy manner to purchase their drinks. However baristas have complained that they’ll overwhelm shops, notably throughout promotions. Prospects are additionally extra more likely to order extra sophisticated drinks on the app, piling on the syrups, foams and different add-ons that enhance earnings however take longer to make. And people who choose to order in particular person will wait longer as baristas stability assembling digital orders.

Perhaps most significantly, the shift to cell ordering has eroded Starbucks’ in-store expertise as what longtime CEO Howard Schultz billed as a “third place” between residence and work, including to the model’s id disaster.

The pumpkin spice latte, a perennial bestseller, returned in August and is reportedly already driving traffic development for Starbucks. However newer additions to the menu have not fueled the identical pleasure.

Its foray into vitality drinks with an iced line failed to stay with clients, presumably as a result of the drinks had been solely out there in Starbucks’ giant “venti” dimension. A spicy extension of its well-liked Refreshers likewise garnered unfavorable reactions on-line. And whereas the chain’s lavender line was “extraordinarily profitable,” in accordance with Narasimhan, it wasn’t well-liked sufficient to reverse U.S. site visitors declines throughout its fiscal third quarter.

At Chipotle, Niccol ramped up the chain’s new product pipeline, resulting in the introduction of well-liked limited-time gadgets like carne asada and long-awaited additions like quesadillas. Whereas it was a far cry from Taco Bell’s frenetic menu innovation, it was a significant change for Chipotle, serving to drive site visitors to its eating places and convincing shoppers to pay extra for his or her protein choices.

At Starbucks, Niccol should lead the cost to determine what new meals and drinks will get clients excited once more.

For roughly 1 / 4 of a century, on and off, Schultz has been in control of Starbucks, the Seattle-based firm he changed into a world espresso behemoth. After his newest stint as interim CEO from 2022 to 2023, he vowed by no means to return as chief government and relinquished any formal position on the firm.

Nonetheless, the espresso chain has lengthy struggled to shrug off his affect, even when Schultz is not formally within the C-suite.

He is been vocal in regards to the chain’s current struggles, airing his views first in a public LinkedIn publish after which on a three-hour episode of the “Acquired” podcast. Mellody Hobson, who ceded her place as chair of the Starbucks board to Niccol, stored Schultz within the loop about discussions to oust Narasimhan, his handpicked successor, and to rent the Chipotle CEO in his stead. Schultz additionally owns a 2% stake in Starbucks.

Prior to now, Schultz’s affect has been blamed for the corporate’s succession points, much like these of Disney. And regardless of his retirement, traders have remained involved about his degree of involvement with the corporate, pressuring the inventory.

Niccol arrives at Starbucks as each CEO and chair, and with six years of expertise main a restaurant firm after its founder stepped down. Solely time will inform if that is sufficient to beat Schultz’s shadow.