Starbucks has poached Chipotle CEO Brian Niccol with a lucrative package and remote work option, aiming to reverse the company’s faltering performance.

In a surprise move, leading coffeehouse chain Starbucks has ousted its chief executive officer Laxman Narasimhan after just 16 months on the job, replacing him with a CEO known for making dramatic financial turnarounds and resolving crisis situations.

In its official statement, Starbucks announced that fast food chain Chipotle’s current chairman and CEO Brian Niccol has been appointed as its new chairman and CEO. His appointment takes effect in September, while Narasimhan’s termination was effective immediately.

The unexpected decision was made amid falling sales and its founder and chairman emeritus Howard Shultz publicly expressing his displeasure over the company’s recent performance on social media and in podcasts.

“Niccol will start in his new role on September 9, 2024. Starbucks chief financial officer, Rachel Ruggeri, will serve as interim CEO until that time. Mellody Hobson, Starbucks board chair, will become lead independent director,” the statement said.

Falling Sales and Reputation Issue

“Starbucks said in 2022, it wanted over the next three years to open a cafe in China every nine hours, which sounds bonkers and it is. Except if you consider the fact that in China last year a brand new coffee shop opened on average every 20 to 30 minutes.”

Spencer Jakab,
Editor, WSJ’s Heard on the Street

The coffee giant has been hurting from declining sales in its two biggest markets–the United States and China. China in particular, was supposed to be Starbucks’ biggest growth source that would compensate for the saturation of the U.S. market. But the sudden growth of local Chinese brand Luckin in 2023 disrupted Starbucks’ momentum. 

“In 2023, Luckin went into total turbo overdrive in terms of news store expansion,” explains Wall Street Journal’s Heard on the Street editor Spencer Jakab in a vlog.

The growth of the local coffee brand has also disrupted Starbucks’ ambitious three-year plan to set up a café in China every nine hours, until 2025.

“Starbucks said in 2022, it wanted over the next three years to open a cafe in China every nine hours, which sounds bonkers and it is. Except if you consider the fact that in China last year a brand new coffee shop opened on average every 20 to 30 minutes,” explained Jakab.

Further aggravating the situation is a global boycott due to the perception that the company was supporting Israel in its invasion of Gaza, which Starbucks had denied.

By bringing in Niccol, Starbucks is hoping he can turn the company around as he did for Chipotle in 2018, when the Mexican grill food chain recruited him after dealing with food safety issues that ignited an investigation from public health authorities.

The Wall Street Journal reports that from a market value of $8.9 billion when he took over, Chipotle’s value has soared to $76.5 billion in just six years.

“Since becoming CEO in 2018, Niccol has transformed Chipotle,” says Starbucks in its statement. “Revenue has nearly doubled, profits have increased nearly sevenfold, and the stock price has increased by nearly 800% during his leadership, all while increasing wages for retail team members, expanding benefits, and strengthening the culture.” 

The recruitment, spearheaded by the Starbucks board and Chairman Mellody Hobson, was welcomed by its founder, Howard Shultz. “I believe he is the leader Starbucks needs at a pivotal moment in its history. He has my respect and full support,” affirmed Schultz.

Hefty Package, Remote Work

Niccol’s total package adds up to approximately $113 million. Financial Times reports that it is “one of the largest hiring packages in US corporate history and four times larger than the sign-on deal offered to his ousted predecessor.”

It includes a $10 million signing bonus, a $75 million equity grant, and an additional annual grant potentially worth $ 23 million.

These are all in addition to his annual salary of $1.6 million and additional performance-based bonus of at least $3.6 million.

As an added incentive, Starbucks has allowed Niccol to work remotely from his current residence at Newport Beach, California, where a small remote office will be provided. He will also have the company jet at his disposal to travel to and from the company headquarters at Seattle, Washington, as needed.

The perk comes despite the change in Starbucks’ remote work policy after the pandemic. It has since required employees within commuting distance to revert back to in-office work at least three times a week. This is also in contrast to Narasimhan’s deal, where he had to relocate from the United Kingdom to America.

“The [Starbucks] board’s willingness to pay such a high price is testament to the faith they have in Niccol,” Ben Silverman, vice-president of research at Verity told the Financial Times. “But he’s going to have to prove that he’s worth it because his annual compensation is about 75 per cent higher than that of his predecessor.”

Narasimhan was only offered a total package of $28 million in 2018.

On the other hand, the report says, Niccol’s total pay at Chipotle was at $22.5 million in 2023; his unrealized gains from past equity incentive grants is valued at over $82 million.

The Back-Seat Driver

For Beth Kowitt, Bloomberg’s Opinion columnist, Niccol is worth every dollar. “Incoming Starbucks Corp. CEO Brian Niccol is a star executive who is widely considered the best in the business,” she says in her column. “Quite frankly, it’s surprising the company was able to hire him.”

Kowitt explains that the problem is the persistent “meddling” of Shultz, who couldn’t seem to let go of control in the company. He has publicly criticized Narasimhan and the board despite personally choosing and training Narasimhan for the CEO position.

“It’s only the latest example in Schultz’s long history of undermining his replacements,” notes Kowitt who says he did the same to former CEO Jim Donald in 2007 and Kevin Johnson in 2022.

Kowitt adds, that Shultz is also the company’s biggest individual shareholder and has negotiated to be chairman emeritus for life. ”It’s all more than enough to give any CEO candidate pause, especially a highly coveted one like Niccol, who could take his pick of companies,” observes Kowitt. 

The columnist presumes that Shutlz’s lurking presence may have been a big factor in the offer of added incentives and compromises. This included giving Niccol the dual role of chairman and CEO, despite US companies increasingly moving away from having a single person occupy both posts for better governance.