What Chipotle CEO's move to Starbucks means for coffee giant

Starbucks (SBUX) stock is surging Tuesday following the announcement that Chipotle's (CMG) CEO Brian Niccol will be taking over as Starbucks' new chief executive, replacing Laxman Narasimhan.

BTIG managing director Peter Saleh joins Market Domination to discuss the potential impact of this leadership change on Starbucks' future.

Saleh expresses confidence in Niccol's appointment, noting he has "a lot of experience to bring with him." Saleh adds, "I can't think of many other great leaders to lead this company." However, he cautions that the turnaround won't be immediate, as improvements are needed in several areas of Starbucks' business, including its operations in China, US throughput, and loyalty program.

"He's got a lot of work to do, but I think he's the right fit for this company at this time," Saleh states.

Highlighting Niccol's successful tenure at Chipotle, Saleh points to key areas of investment that contributed to that company's turnaround, including the "Chipotlanes" drive-thrus, national advertising, and digital and loyalty program enhancements.

"These are things that Starbucks already has, so he's gonna take it to the next level at Starbucks," Saleh tells Yahoo Finance.

For more expert insight and the latest market action, click here to watch this full episode of Market Domination.

This post was written by Angel Smith

Video transcript

If you're a sports fan, this next story is like the equivalent of a blockbuster trade or perhaps a big time coaching hire for a slumping team in need of a new playbook.

Starbucks share surging today after the coffee chain named Brian Nicol as its next chairman and Ceo Nichol who had been the CEO of Chipotle since 2018 will join Starbucks on September 9th.

The move is having the opposite effect on Chipotle Stock.

You can see down about 6% joining us.

Now is Peter Salah BT IG managing director to break it all down, Peter.

I want to start with your reaction from the Starbucks perspective.

What do you think Brian Nichol can bring to Starbucks here?

Is there a piece of what he's done at Chipotle that is perhaps directly applicable to that situation at Starbucks?

Yeah, great.

So thanks for having me.

Well, I guess right out of the gate, he's added uh 18 billion in market cap to the company for a day's work, right?

Peter.

Not bad for not even uh stepping foot into the headquarters quite yet.

So, not too shabby um on, on a different front, on a more serious front.

Look, I, I think he has a lot of experience and he's going to bring with him.

One is a lot of investor confidence and he's gonna get the leeway to do the things he needs to do, to improve this business.

I can't really think of many other great leaders to lead this company aside from Howard Schultz, uh you know, Brian.

Brian would be the next one in, in, in line.

So I think he's got the experience, he's gonna have the the investors behind him.

Uh I think it's gonna take some time.

Um But I think he can make some changes.

You gonna have to make some changes in China have to make some changes in the US business in terms of throughput, maybe some changes to their digital loyalty program, got a lot of work to do.

But I think he's the, he's the right fit for this company at this time and that seems to be the consensus for sure Peter.

So some of the changes that you mentioned, I'm curious like, what are some of the things he's done at Chipotle that maybe not directly transferable, but are the things that are going to be the most useful for him when he goes over to Starbucks?

So we felt like the changes he made at Chipotle were very much the QSR playbook in terms of investing in drive throughs the Chipotle Lanes, something QSR does very well.

A lot of drive throughs he invested in that started in 2018 2019 80 90% of their development today is drive through development at Chipotle Two.

He invested behind uh national advertising, they didn't do national advertising.

In the past, he put more money behind that.

That has worked, that has been a tremendous success for them.

Three, he invested behind their digital and loyalty program.

They didn't have a loyalty program, they didn't have a lot of digital ordering now they have it.

That has been another huge success for them.

These are all things that, that Starbucks already have.

So he's got to take it to the next level at Starbucks.

It's not going from zero to something.

He's going to be going from, you know, a pretty well established brand.

He needs to make some tweaks to push it forward and, and again, I think those tweaks are going to have to be on the rewards program.

They're going to be, have to be on throughput and they're going to have to be in China, in our opinion, if he's going to really move the needle on earnings here.