Starbucks shares rose 24% and Chipotle shares fell 7.5% after the burrito retailer’s CEO Brian Niccol left the company to take over the coffee retail chain on Sept. 9, according to CNBC.

What a difference a CEO can make: The impact of this leadership change on market capitalization was $26.2 billion on August 13 alone, with Starbucks adding $20.4 billion while Chipotle fell $5.8 billion. CNBC noted.

Laxman Narasimhan, CEO of Starbucks, was fired from his job after 16 months, during which time the company’s stock lost 22 percent of its value following a series of weak earnings reports.

Meanwhile, Niccol led a turnaround at Chipotle following the tainted meat scandal in 2018. His turnaround began in March 2018 – and ultimately led to growth that exceeded expectations and sent Chipotle stock soaring 760%, according to the Wall Street Journal.

Can Niccol lead to a similar rise in Starbucks stock? At Chipotle, Niccol doubled revenue during his tenure through the following strategy elements:

• Employees are being retrained in safety and health protocols.
• Around 1,000 new stores were opened worldwide.
• Introducing new technology to streamline time-consuming tasks such as guacamole processing.
• Modernization of digital and mobile ordering and introduction of digital pickup lanes.

Instead of stubbornly applying the strategies that worked for the burrito chain to Starbucks, Niccol should identify the core problem hindering Starbucks’ expansion and use his strategic and operational skills to accelerate the coffee chain’s sales growth.

If Niccol can double Starbucks’ sales, investors will be richly rewarded.

How Starbucks got into trouble under Narasimhan’s leadership

Narasimhan took over as head of Starbucks in March 2023 and was responsible for a significant decline in the company’s stock price. The coffee chain’s shares fell 22% while the S&P 500 rose more than 36%, according to FactsSet.

I was surprised that Starbucks founder and former CEO Howard Schultz had pushed for Narasimhan to be hired as CEO, given his lack of experience running a grocery chain. Instead, Narasimhan previously served as CEO of Reckitt – which owns brands such as Lysol and Mucinex. After becoming CEO, he “spent months learning the Starbucks business, including training as a barista,” reported CNBC.

Apparently, that wasn’t enough to boost growth at Starbucks. In April, the coffee chain cut its 2024 financial forecast for the second time, “as traffic in its cafes declined, hurting sales and profits,” the magazine reported. In addition, Starbucks faced increased competition in China, an important growth market for the company.

In May, Schultz argued that the company’s strategy was flawed. He wrote that the company needed to “improve its ordering and payment experience on mobile and revamp the way it creates new beverages to focus on premium products that differentiate it from the competition,” according to a LinkedIn post by Schultz, which was published in a CNBC Report.

Starbucks began looking for a successor to Narasimhan. “Our board started talking about running the company a few months ago, and I made an offer to Brian through someone, and he took the call,” said Mellody Hobson, now Starbucks’ leading independent director, CNBC on August 13th.

How Niccol turned Chipotle around

Starbucks’ board is confident that Niccol can quickly get the business back on track. “But what we saw in Brian was someone who, quite frankly, has been through it all – in all kinds of market environments, all kinds of cycles,” Hobson said. CNBC“I remember when I talked to him, he said, ‘I know what to do,'” she added.

Niccol’s accomplishments are impressive. When he became CEO of Chipotle in 2018, he helped the chain “recover from its food scandal and led its restaurants through the pandemic.” CNBC reported.

While other restaurants have recently reported a sharp decline in consumer spending, Chipotle has bucked the trend and seen an increase in customer traffic and sales. CNBC wrote.

Here are the key elements of Niccol’s turnaround strategy for Chipotle, which resulted in the burrito chain’s revenue nearly doubling to $10 billion in fiscal 2023. Reuters noted:

• Food safety issues overcome by retraining restaurant employees on safety and health protocols during working hours.
• New shops added – During Niccol’s tenure, nearly 1,000 new stores were opened worldwide.
• Optimized processes through Shortening Guacamole Preparation Time by 50% through automation and faster cooking through the use of robotic double-sided grills.
• Modernized ordering system by improving the quality and efficiency of the burrito chain’s digital and mobile ordering platforms.
• Added digital pickup lanes for orders. Of the 271 new restaurants the company opened in 2023, 238 had one – a so-called Chipotlane.

Chipotle’s problems in 2018 are different from Starbucks’ problems in 2024

Niccol must identify and solve different problems at Starbucks than at Chipotle. “Starbucks is a much more complicated model than Chipotle, with owned and licensed stores, domestic and international locations, and a significant presence in crisis-hit China,” wrote BTIG analyst Peter Saleh in a report published by CNBC.

Starbucks has more internationally licensed locations than Chipotle, which mainly operates its own restaurants in the U.S. In addition, Starbucks locations in China, the company’s second-largest market, continue to struggle due to local competition and a weakening economy, the magazine.

In addition, while people still want Chipotle’s burritos, consumers’ economic worries have reduced their desire for coffee – which could be Niccol’s biggest problem. “His challenge is to attract a new customer,” said Wedbush analyst Nick Setyan CNBC.

“Apart from the ability to change the direction of macroeconomic headwinds, we believe shareholder euphoria (as reflected in the share price this morning) is premature,” Setyan added.

Investors should hope that Niccol recognizes and solves these different problems. The Bed Bath & Beyond bankruptcy is a lesson – the board had recruited a CEO from Target who applied what worked at Target to a very different company – with disastrous results, according to a May 2023 study. Forbes Post. Bed Bath & Beyond filed for bankruptcy in April 2023.

If Niccol doesn’t heed such lessons, he might find himself applying what worked at Chipotle to Starbucks.

Can Niccol accelerate Starbucks’ revenue growth?

Most analysts have been very optimistic that Niccol can get Starbucks back on track. Here are some reasons why:

• Niccol can replace Schultz. “Brian is probably the only restaurant manager who has the authority to deal with the ‘overhang’ of the Howard Schultz founder,” said Evercore ISI analyst David Palmer Reuters.
• Niccol can do for Starbucks what he did for Chipotle. “Starbucks is bringing a renowned restaurant CEO on board, and his appointment … suggests a new era is dawning,” said TD Cowen analyst Andrew Charles. Reuters“We see similarities between Chipotle’s turnaround to a premium brand in 2018 and what Starbucks needs in 2024 to increase customer traffic.”
• Niccol will fix Starbucks. “I was happy to hear the news about Starbucks… the stock was a colossal disappointment, as was Laxman… Brian Niccol has done wonders at Chipotle… he has done everything right and really moved the company forward using the Chipotle footprint and digitalization… Niccol will fix Starbucks,” said Nancy Tengler, CEO of Laffer Tengler Investments, ^ “Reuters”.

Investors should remain cautiously optimistic, as Starbucks’ turnaround will depend on Niccol’s ability to win back customers with new offerings and a more attractive shopping experience.

“While some of the slowdown can be attributed to more cautious consumer spending, much of it is also the result of a deterioration in the shopping experience and a lack of innovation in areas such as food,” GlobalData analyst Neil Saunders wrote in a note to investors obtained by the ^ “Washington Post: The Secret World”.