Has Starbucks Finally Found the Right Leader?

This commentary originally appeared in Fortune.

Starbucks became a global brand as strong as the likes of McDonalds, Coke, Pepsi, Google, Apple, and Levi Strauss in a record time—but its value as an enterprise has been plummeting in recent years. So, the man who built the brand, Howard Schultz, intervened even though he no longer held any official position in management or on the board. Schultz remains the largest shareholder—and he just helped drive out his fourth attempted successor, Laxman Narasimhan.

A week earlier, Schultz’s former lead director and close friend, Mike Ullman, the former CEO of JC Penney, passed away. Schultz privately met with Brian Nicoll, the CEO of Chipotle, who was just named the fifth successor to Schultz. The market reaction drove the stock up 25%– the greatest surge in value in the company’s history.

Here’s how the CEO shakeup came about, what went wrong for the departing Laxman Narasimhan at Starbucks, and why Brian Niccol is the right person for this turnaround job, as well as the challenges—and opportunities—that await him.

Schultz is a general who keeps coming back

While I have known Howard Schultz personally for decades, as well as half the board, it was actually back in 1977 on a research trip from Boston when I discovered Seattle’s beloved Starbucks—a locally treasured coffeehouse along the cobblestone streets of Pike Place Market—a full four years before Howard Schultz, began working there. I told everyone about this relaxed caffeine oasis with the aroma of newly roasted sacks of exotic beans, where lost poets, longshoremen, and lawyers discussed worldly events while sipping on amazingly fresh ground expresso drinks and munching on expresso candies.

Since I only teach business, I just raved about Starbucks. It took a real entrepreneur like Schultz, with his unique compelling vision and unrelenting, determined, inspiring hard work over years 40 years, to go on to build a pioneering brand as the treasured “third place” between work and home around the globe, with almost 40,000 stores today and a market value of more than $100 billion.

During that period, the visionary leader navigated many ups and downs—but no issue has plagued him more than finding a worthy heir to the throne. It’s not like Schultz hasn’t tried—many times. Orin Smith and Jim Donald managed the organization for eight years before Donald was replaced by Schultz in 2008, who then maintained the CEO role for another decade. This was followed by the truncated succession to Kevin Johnson in 2017, only to be cast aside by Schultz in 2022. In my book The Hero’s Farewell, I labeled this kind of returning CEO who cannot let go “generals.”

How the CEO shakeup came about—and what went wrong for Laxman Narasimhan at Starbucks

While many media accounts have credited activist investors for this CEO shakeup, the reality is that the activists had very little to do with it, other than raising legitimate issues. In fact, some activists, such as Nelson Peltz’s Trian Management, only publicized their position after the CEO swap amidst a mad rush to jump on the bandwagon of success.

On top of the role played by Starbucks’ hugely impressive and responsive board, looming large was Schultz, who personally met with Niccol last week and enthusiastically supports Niccol for the position. The change came mere months after Schultz publicly castigated Starbucks’ performance under Laxman Narasimhan in a series of scolding LinkedIn posts. Narasimhan’s defenders point out that this move by Schultz fits a long pattern of making his complaints about successors public.

Narasimhan’s defenders also argue that if Narasimhan had more time, the results would be better. Indeed, a year after Howard Schultz himself returned to Starbucks in 2008, the stock was down 50%—and it took three years for the stock to bounce 63%.

Laxman Narasimhan is a very well-respected individual, personally and professionally, with many vocal and impressive supporters. It is impossible to find anybody with a bad word to say about Narasimhan’s character, but it was fair to question whether his background as a seasoned executive in consumer packaged goods was the correct one for Starbucks’ unique challenges.

When Narasimhan started as Starbucks CEO in 2023 with Schultz’s full endorsement, supporters hailed his prior successful stints at PepsiCo and Reckitt Benckiser. However, turnarounds in the staid consumer goods space often take years, if not decades. As criticism intensified that Narasimhan was moving too slowly with his turnaround plans for Starbucks (only last month did he finally make the company’s vaunted mobile order and pay platform available to all customers in lieu of only rewards members, after years of planning), some critics openly agitated for a more agile executive who would be in sync with the fast-moving pace of fast food.

Narasimhan also encountered massive structural and macroeconomic headwinds outside of his control. These included a global consumer slowdown, boycotts arising from the Mideast crisis, and elevated local competition from Luckin Coffee in China, a market that represents 55% of non-U.S. sales. In particular, Luckin stores grew from two stores in 2017 to now well over 20,000, towering over Starbucks in China today.

Narasimhan response did not drive the needed traffic into Starbucks stores. One analyst described it as a discount-driven, “throw everything the wall and see what sticks” turnaround strategy, trying to cut his way to market share gains. This might be similar to the consumer packaged goods approach of pursuing market share gains through rotating promotions, but for Starbucks, it only resulted in customer confusion.

Similarly, a portfolio of costly new product launches—such as a Summer Berry Refresher and a $5 food-and-drink bundle—failed to halt the decline in-store traffic and sales. These brand-blurring promotions are rather jarringly out of place at a premium experience-driven coffee chain with a customer base that is 50% millennials. Similarly, the jarring title for the turnaround strategy, “Triple Shot Reinvention With Two Pumps,” was widely derided as “cringeworthy” and even “gauche.”

What Brian Niccol brings to the coffee table

By contrast, Brian Niccol is expected to hit the ground running with a track record of matching fast food sector challenges. Niccol arrived in Chipotle in early 2018 to lead a resurgence in the brand after a widely publicized E. coli outbreak which damaged customer confidence and loyalty. In 2012, Niccol had to steer Taco Bell through a similar outbreak as president of the Yum Brands business unit.

Niccol’s approach to rebranding, defined by premiumization and growth-focused marketing, is the opposite of Narasimhan’s. At Chipotle, he dubbed the campaign “For Real” to highlight the premium-quality freshness of the chain’s “food with integrity”. This was a dramatic shift from the desperate discount-driven strategy of his predecessor, Steve Ells, the founder of Chipotle. Transferring this approach to Starbucks would match investors’ hopes of a premiumization-based turnaround.

Once consumer trust was reestablished after the E. coli crisis, Niccol carefully refreshed menu items, selectively introduced instant favorites, such as carne asada, and designed healthier premium options to actually meet evolving consumer demands. His plan paid off quickly. Chipotle’s stock was up nearly 40% in the year of his arrival.

Niccol next addressed improving in-store operations. In his five years with the fast-casual chain, Niccol modernized ordering processes to smoothly integrate with the latest technology used by consumers: embracing delivery via mobile service apps, implementing the Smarter Pickup Times initiative, and launching a successful rewards program. Notably, the Chipotle rewards program maintains 40 million members, millions more than the Starbucks scheme, even though Chipotle’s reward program notably launched more than 10 years after Starbucks.

These operational enhancements have been accelerated by integrating pioneering approaches in AI. At a recent Yale CEO Summit, Niccol told us privately how he used AI to alleviate pain points for Chipotle employees: “We’ve heard feedback from our team members that the jobs they don’t enjoy doing include frying chips; and cutting, coring, and scooping avocadoes, so we’ve been finding automated solutions that can take care of that prep in a consistent way.” One example is Chippy the robot, which makes tortilla chips. Rather than replacing human workers, Niccol sees these robots as complimentary: “One of our biggest challenges is getting prep done on time for opening every day, especially if someone calls off in the morning and the team is short a person.” He went on to explain that automation was a key ingredient in Chipotle’s plans for scaling internationally.

Customer centricity has also been at the core of Chipotle’s enhanced operations under Niccol’s watch. With his recognized operating prowess, Niccol added the simple but well-known grab-and-go shelving in every Chipotle restaurant—shelves stocked by dedicated “second kitchens” that only fulfill to-go orders and, most importantly, keep in-store customer orders moving quickly. The operations mastermind even ensured to-go orders would be swiftly prepared by providing those second kitchen cooks with easy-to-read screens, an action Niccol noted as simple but important for accurately and rapidly completing orders.

Employees were not forgotten under Niccol either. The CEO ensured that any updates to the product and operations were communicated and embedded throughout employee training. As the public face of the organization, employees were provided with pocket guides explaining the 50 fresh ingredients as well as preparation and operating expectations associated with his “For Real” marketing campaign. Niccol also took care of Chipotle employees, providing wage increases as well as tuition reimbursement programs to reflect the market competition for talent of the post-COVID era. Efforts have paid off. Chipotle is consistently rated as one of the best fast-food restaurants for employment. The overall impact of Niccol’s leadership has been clear: only nine S&P 500 companies have performed better than Chipotle, since Niccol became CEO, with the stock up more than 770% since March 2018.

In this era of self-directed work teams, board consensus, and peer benchmarking, the leadership change at Starbucks expects that a single individual, that is, the captain of a boat or the coach of a team, can make a big difference. We think that is so, but Niccol has to prove it, again.

It won’t be easy. Niccol has to navigate a major change in scale—from leading Chipotle’s ~3,500 stores, with only 100 of them international, to ~40,000 Starbucks shops across complex global markets. But his past successes with premiumization and growth-driven turnarounds make him a smart bet for Starbucks as the company strives to leave its successorship challenges firmly in the past.

Niccolo Machiavelli was the first to suggest, “Never waste an opportunity presented by a good crisis.” Niccol and Starbucks have great opportunities but don’t need any more crises.