Starbucks CEO Laxman Narasimhan replaced by Chipotle’s Brian Niccol

Starbucks CEO Laxman Narasimhan is stepping down after only 17 months leading the stalled Seattle-based coffee giant.

Chipotle CEO Brian Niccol will take over the role on Sept. 9, Starbucks announced early Tuesday. Narasimhan’s resignation was effective immediately; he is also leaving the board of directors.

Starbucks Chief Financial Officer Rachel Ruggeri will serve as interim CEO.

Narasimhan became CEO in March 2023, having moved from the U.K. to take the job. He replaced Howard Schultz, who was in his third stint as Starbucks CEO. Schultz had come out of retirement in 2022 to serve as interim CEO after Kevin Johnson retired.

“On behalf of the board, I want to sincerely thank Laxman for his contributions to Starbucks, and his dedication to our people and brand,” Starbucks board chair Mellody Hobson said in a news release. “In the face of some challenging headwinds, Laxman has been laser focused on improving the business to meet the needs of our customers and partners.”

Weak sales traffic had plagued Starbucks’ U.S. and China locations, bringing down quarterly revenue as supply chain issues caused the company to back away from marketing new products. The company is also still facing boycotts over what activists assert is its support for Israel in the war in Gaza.

A former PepsiCo executive and CEO of U.K.-based Lysol-maker Reckitt, Narasimhan was an outsider to the U.S. food retail industry. Picked in September 2022, he inherited a reinvention plan introduced by Schultz that included investment in new stores, technology and leadership that would prioritize convenience.

Schultz introduced the plan during the company’s 2022 Investor Day at its Sodo neighborhood headquarters, with a $450 million price tag attached to it. In a contrast to its “Third Place” model, Starbucks said it would emphasize more-profitable pickup-only and drive-thru locations.

Narasimhan spent a six-month transition period learning the ropes from Schultz while also training as a barista. At one point he said he planned on working once a month in a Starbucks store.

He also backed up Schultz’s reinvention by announcing in April that Starbucks would invest $600 million over the next three years to inject more automated technology into stores.

Under Narasimhan, Starbucks has had two quarters in a row of falling sales. Last quarter, sales at coffee shops fell by 3% compared with the previous year. Revenue has been buoyed by customers spending more per purchase, but investors have not been happy.

In April, Starbucks reported slumping sales, which set off a 12% share price drop in after-hours trading when earnings were reported.

“It was certainly a surprise to the market to replace him but ultimately it comes down to a combo of things, including poor sales and mounting pressure from activist shareholders,” said Jarrad Harford, a University of Washington Foster School of Business professor. “There were too many signs that things weren’t turning around as quickly as people wanted them to and it’s clear the board had been thinking of this for a while.”

In May, a week after a Starbucks earnings report said quarterly revenue dropped by 2%, Schultz blasted the company’s leadership for not spending enough time in stores or focusing on coffee drinks.

“I have emphasized that the company’s fix needs to begin at home: U.S. operations are the primary reason for the company’s fall from grace,” Schultz said in a LinkedIn post. “The stores require a maniacal focus on the customer experience, through the eyes of a merchant. The answer does not lie in data, but in the stores.”

Schultz resigned from the board in September 2023 and stepped into the role of chairman emeritus.

Narasimhan was also confronted with a growing unionization push at Starbucks when he started. In his first week on the job, baristas in more than 40 U.S. cities protested alleged union busting by the company. Some striking Northwest baristas picketed the company’s headquarters.

With Niccol installed, the union representing Starbucks workers expects to negotiate agreements and resolve labor-related litigation.

“Starbucks Workers United partners love this company and are committed to helping it thrive. We believe partners have an important role to play in helping get the company back on track, which is the spirit we’ve brought to the bargaining table,” Starbucks Workers United President Lynne Fox said in an emailed statement. “The constructive relationship we continue to build with Starbucks is important, including dozens of tentative agreements and hundreds of hours of productive bargaining.”

Under Niccol, Chipotle saw a unionization push of its own. The U.S. government found last year that Chipotle had broke the law by closing a store in Maine that voted to unionize.

Harford said the bet on Narasimhan made sense at the time. With the retirement of Johnson and the temporary leadership of Schultz, the company’s turnaround could have been fueled by unconventional thinking.

“It really didn’t work,” he said. “But Chipotle has been on a tear, so to get the person leading that is getting someone who has instant credibility with Wall Street.”

Starbucks’ share price dropped to just over $72 in April after the company reported poor sales, erasing gains it had made between mid-2022 and the end of 2023 to reach $114.

With the announcement, Starbucks’ share price rose 25% on Tuesday to almost $96.

Starbucks’ board has changed during the Narasimhan era.

Microsoft CEO Satya Nadella stepped down in June without explanation after more than seven years on it. Nadella’s departure came six months after the board added T-Mobile CEO Mike Sievert, YouTube CEO Neal Mohan and Daniel Servitje, chief executive at Mexican food giant Grupo Bimbo.

Niccol, the incoming CEO, has been leading Chipotle since 2018. Starbucks’ news release said that during his tenure, revenue has “nearly doubled, profits have increased nearly sevenfold and the stock price has increased by nearly 800%.”

Elliott Investment Management, one of Starbucks’ largest investors, cheered the selection in a news release, saying it had been talking with the board over the past two months on what it felt were the company’s key issues.

“We view today’s announcement as a transformational step forward for the Company,” said Elliott managing partner Jesse Cohn and partner Marc Steinberg in the release. “We welcome the appointment of Brian Niccol, and we look forward to continuing our engagement with the Board as it works toward the realization of Starbucks’ full potential.”