Starbucks shares rose more than 20% on Tuesday after the coffee chain announced it was ousting current CEO Laxman Narasimhan and replacing him with Chipotle boss Brian Niccol. The move comes as Starbucks struggles with activist investors, stagnant sales and a falling stock price.

Starbucks shares rose $15.93, or 21 percent, to $92.96 in early afternoon trading, after rising as much as 24 percent earlier in the day. Before today’s surge, the company’s shares had lost 18 percent of their value since January.

Starbucks said Tuesday that Niccol will begin his new role on Sept. 9. The company’s chief financial officer, Rachel Ruggeri, will serve as interim CEO until that date, while Mellody Hobson, the board chair, will become Starbucks’ lead independent director. Narasimhan, who led Starbucks for just over a year, is stepping down effective immediately.

The appointment comes as Starbucks lose ground among consumers around the globe, leading to the first quarterly sales decline since 2020 earlier this year. Customer traffic in stores fell 3% year-on-year in the January-March period, with some coffee drinkers complaining that the drinks were too expensive at a time when many people are under financial pressure due to inflation.

“There is a feeling that Starbucks has been on the defensive for too long and has lost sight of what is important. This has led to weak performance, particularly in the US,” said Neil Saunders, managing director of GlobalData, in a research note on Tuesday.

He added: “Some of the slowdown can be attributed to consumer reluctance to buy groceries, but much of it is also the result of a deterioration in the shopping experience and a lack of innovation in areas such as food.”

Activist investors

Narasimhan, a longtime PepsiCo executive who also served as CEO of Reckitt, a British consumer health company, became CEO of Starbucks in March 2023. He succeeded Howard Schultz, Starbucks’ longtime leader and chairman emeritus, who returned from retirement in 2022 to serve as the company’s interim CEO.

But investors and the company’s board quickly turned away from Narasimhan as sales declined and Starbucks struggled with numerous problems, including the rise of cheaper competitors in China and boycotts in the Middle East and elsewhere related to the war between Israel and Hamas.

Elliott Investment Management, an activist firm with a significant stake in Starbucks, said it began talking to Starbucks’ board about a leadership change two months ago. In a statement Tuesday, the company called Niccol’s appointment a “transformative step forward.”

“We welcome the appointment of Brian Niccol and look forward to continuing our collaboration with the board as it works to realize Starbucks’ full potential,” Elliott CEO Jesse Cohn and partner Marc Steinberg said in a joint statement.

Since Niccol became CEO of Chipotle in 2018, the burrito chain’s sales have doubled while profits have increased nearly 800%, Starbucks said. Chipotle’s stock price has risen 24% since January.

Chipotle’s share price fell $4.96, or 9 percent, to $50.91 following news of Niccol’s departure.

— With reporting from the Associated Press.