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Starbucks (SBUX +22%) made some pretty shocking news this morning when it announced it had hired Chipotle (CMG -12%) CEO Brian Niccol as its new Chairman and CEO. Laxman Narasimhan is stepping down as CEO, effective immediately. Starbucks CFO Rachel Ruggeri is now serving as interim CEO until Niccol takes the helm on September 9, 2024.

• This news came just after the WSJ reported late Friday that activist investor Starboard Value had taken a stake in the coffee chain. This follows previous reporting from CNBC that Elliott Mgmt had accumulated a stake that could worth as much as $2 bln. Clearly, these firms saw value in SBUX shares, which have fallen 30% from their mid-November 2023 highs. While it's unclear how much of a role these activist investors had in the new CEO hire, clearly, SBUX felt a change was needed at the top.
• Since Niccol took the helm at CMG, revenue has nearly doubled, profits have increased nearly sevenfold, and the stock price has increased by nearly 800%. SBUX says his focus on brand, menu innovation, operations and digital transformation have set new standards in the industry. Before that, Niccol served as CEO of Yum! Brands' (YUM) Taco Bell Division, where he was responsible for the highly successful turnaround of that business.
• Turning Starbucks around will not be an easy lift. With consumers increasingly seeking value, Starbucks premium pricing has been a headwind for the company. SBUX has missed on revenue in each of the past three quarters and four of the past five. Comps have been weak. SBUX has been improving operations and supply chain, while also introducing new drinks, with an increased focus on energy drinks. However, SBUX was been criticized for being late to the energy and boba trends.
• China is a whole other story. SBUX has invested heavily in China, but Starbucks is facing cautious consumer spending and intensified competition. SBUX has seen unprecedented store expansion in the past year and a mass segment price war at the expense of comp and profitability. In Q3 (Jun), China posted -14% comps. However, SBUX plans for more stores.

Overall, Niccol was a big get for Starbucks and that's reflected in the price action today. He has not said what changes he will make. However, we suspect he may advocate for slowing SBUX's ambitious plans for new openings. Also, one thing about Niccol is that he is innovative in terms of the menu and Starbucks needs to be better at getting ahead of trends. He had success with Taco Bell's menu and Chipotle has rolled out popular seasonal items.

Niccol also has a track record for pushing heavily on digital ordering, we suspect that will be a focus. But the elephant in the room is how to appeal to consumers' desire for value when your brand is a premium brand. That is not an easy fix, we suspect some value pricing or pairing with food will be considered. Finally, what does this mean for Chipotle? The stock has been under pressure since mid-June and this is adding to the weakness. Investors are sad to lose Niccol, plus it's fair to wonder what he saw at CMG that made him decide to leave?