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.