LDN - Business

Veteran fast-food exec known for tackling crises head-on takes over at Starbucks

[August 14, 2024] By Waylon Cunningham

(Reuters) - When burrito maker Chipotle came under fire on social media for supposedly shrinking portion sizes earlier this year, CEO Brian Niccol made a striking admission: the company's critics had a point.

He told investors on the brand's recent earnings call that Chipotle had identified "outlier" stores skimping on portion sizes, and would retrain them. In doing so, he generated dozens of media stories that reprinted his comments emphasizing Chipotle's brand as a purveyor of "generous portions" - effectively turning a public relations fiasco into good press.

That is the magic trick that Starbucks, faced with sagging sales in the U.S. and abroad, may be looking for.

On Tuesday, Starbucks' shock decision to name Niccol as the battered brand's new top executive electrified Wall Street, which added $21 billion to Starbucks' stock market value in a single day, while Chipotle lost nearly $6 billion in value the same day.

Directly confronting speculation about Chipotle's portion sizes, which other executives may have dismissed as viral misinformation, gave investors a reminder of Niccol's reputation within the fast food industry as a brand-centered executive who wades into crises with his sleeves rolled up.

“If you aren’t walking the talk on what you’re promising to the customer, you’re not going to win,” Niccol said in a 2022 interview with Madhav Rajan, dean of the University of Chicago's Booth School of Business, Niccol’s alma mater.

Niccol brings to the job a resume heavy on marketing experience, particularly for brands in crisis.

Niccol spent ten years at Procter & Gamble managing brands such as Scope mouthwash and Pringles potato chips, before spending more than ten years at Yum Brands. He served as the top marketing executive at Pizza Hut and Taco Bell - where he spearheaded the brand's "Live Más" tagline - and capped off his time at the company with a three-year stint as Taco Bell's CEO.

Niccol took the reins as Chipotle's top executive in 2018, after repeated E.coli breakouts three years earlier sent the brand into a tailspin. It was struggling to win back customers despite pouring millions of dollars into free food giveaways.

"It is mission one to make this brand visible," Niccol told investors on his first earnings call soon after his appointment. "This brand needs to be leading culture, not reacting to it."

Under Niccol, the brand moved away from promotions to advertising fresh ingredients and restaurant-style food prep techniques that few other fast casual chains were using. It launched an ad campaign emphasizing "radical ingredient transparency."

During Niccol's tenure, Chipotle sales doubled to about $10 billion in fiscal 2023, while the chain's stock has more than tripled in value over the last five years.

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February 3, 2023; Pebble Beach, California, USA; Brian Niccol watches his chip shot on the 10th hole during the second round of the AT&T Pebble Beach Pro-Am golf tournament at Monterey Peninsula Country Club - Shore Course. Ray Acevedo-USA TODAY Sports/File Photo

Under his helm, the burrito and rice bowl maker added more than 1,000 new stores globally. The company also started testing automated avocado processors and dual-sided grills to speed up cooking. Those efforts parallel Starbucks' "Siren System," which is meant to help automate making complicated coffee drinks.

At Chipotle, Niccol also focused on modernizing the burrito chain's digital and mobile ordering platforms, and pushed through a store layout redesign that allowed for digital order pick-up lanes called "Chipotlanes."

Niccol also moved Chipotle's headquarters from Colorado to Newport Beach, California. "I'm usually out every week and connecting with suppliers," Niccol said in his 2022 interview with the college dean.

It remains to be seen how Niccol will address Starbucks Workers United - the union trying to organize the coffee chain's U.S. workforce that has already unionized around 475 stores.

Starbucks founder Howard Schultz took a hard stance against the union, while now-former CEO Laxman Narasimhan oversaw a thawing of relations earlier this year, when the coffee giant and the union jointly announced they would begin working toward a labor contract.

Niccol's Chipotle last year agreed to pay $240,000 to two dozen former employees at a store in Maine it closed after the workers filed a petition for a union election. The payment was part of a settlement with the National Labor Relations Board, which said the closure was illegal.

Lynne Fox, president of Workers United, released a statement in response to Niccol's hiring without mentioning him. "The constructive relationship we continue to build with Starbucks is important, including dozens of tentative agreements and hundreds of hours of productive bargaining," the statement said.

Wall Street analysts and restaurant consultants have high praise for Niccol.

Andrew Charles at TD Cowen said Niccol was a "hall-of-fame restaurant CEO," and that his appointment suggests "a new era is underway," drawing parallels between Chipotle's challenges in previous years and Starbucks' challenges today.

Niccol's appointment will "get Starbucks out of this conservative mode, which is unfortunately Laxman (Narasimhan's) legacy," said John Gordon, founder of Pacific Management Consulting Group, a restaurant consulting company.

(Reporting by Waylon Cunningham, editing by Deepa Babington)

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