Starbucks is struggling. So it hired fast food’s Mr. Fix-It
By Nathaniel Meyersohn, CNN
New York (CNN) — In 2018, Chipotle was reeling from food safety fears after an E. coli outbreak, restaurants were considered messy, and new menu items like queso weren’t landing with customers.
The company turned to Brian Niccol to solve its mountain of problems. Niccol had previously led a turnaround effort at Taco Bell, introducing breakfast at the chain, creative items like Doritos Locos tacos, nacho fries and new “Cantina” restaurants.
Niccol then successfully revived Chipotle, leaning on advertising, new menu additions like quesadillas, carne asada and pollo asado, and digital and drive-thru ordering to position the brand as upscale fast food. Chipotle’s revenue has surged more than 800% over the past five years as a result. Last quarter, its sales at stores open at least a year increased 11%, despite tepid growth from competitors like McDonald’s and Wendy’s.
So, starting next month, fast food’s fix-it man will work to turn around Starbucks as its new CEO, the company announced on Tuesday. Niccol will be Starbucks’ fourth CEO in two years, taking the helm amid a slump in Starbucks’ business and pressure from employees and investors.
Investors cheered the news. Starbucks closed up 25%, while Chipotle fell 8% after people heard about the CEO switch.
“It really is a similar story. The comparisons here are pretty spot on between Chipotle in 2018 and Starbucks today,” RJ Hottovy, an analyst at Placer.ai, told CNN.
Starbucks’ slump
People are paying for $15 burrito bowls at Chipotle because they’re seen as good value for their buck, while $6 iced coffees at Starbucks aren’t.
Starbucks’ sales have fallen for two straight quarters. Customers have expressed frustration with high prices, slow pickup orders on Starbucks’ app and lackluster food options. The company, historically considered a progressive employer, has also seen a wave of union organizing at stores stemming from frustration with working conditions, pay and benefits, and that will also be a challenge for Niccol to tackle on his first day on the job.
Niccol and Starbucks did not announce any new strategies Tuesday, but restaurant experts say he will focus on improving Starbucks’ in-store operations and advertising to re-engage lost customers and draw new ones to the brand.
But more than that, they say he needs to bring back some of the image Starbucks began with – a cool coffeeshop and cafe, not simply a quick place to pick up some caffeine.
“He needs to juice up the brand and bring back some of that cachet and vibe and make Starbucks hip again,” said Tom Cook, a principal at restaurant consultancy King-Casey, in an interview with CNN. “The brand is flat. It has no personality and energy.”
New energy
Niccol will join Starbucks as it struggles to transition from a primarily brick-and-mortar company to an online-driven business.
Mobile app and drive-thru orders make up more than 70% of Starbucks’ sales at its approximately 9,500 company-operated stores in the United States.
Starbucks faces increased pressure from rival drive-thru coffee chains on one end and boutique coffee shops on the other — and from people opting to make their morning cup of coffee at home. Grocery prices have surged over the past few years, but those costs have moderated this year. Meanwhile, the cost of eating away from home continued to rise, contributing to Starbucks’ image as overpriced, some analysts say.
Restaurant analysts say that Starbucks, which has historically done less television advertising than rivals, will use marketing to try to improve customers’ perceptions of Starbucks’ brand and prices.
“Niccol’s background in marketing was the backbone to Chipotle’s turnaround,” TD Cowen analyst Andrew Charles said in a research note to clients Tuesday. Niccol will “better utilize marketing to create brand buzz.”
Starbucks may also introduce new drink options to draw customers into stores, analysts say.
Currently, cold coffees, teas and lemonades make up a higher percentage of sales than hot coffee but Charles said Starbucks’ drink innovation efforts have “failed to move the needle” since the introduction of the Pumpkin Spiced line last year. Niccol succeeded adding new menu items to Chipotle, and he will “enable Starbucks to better succeed with menu innovation,” says Charles.
The-CNN-Wire
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