On the last afternoon of April this year, Starbucks chief executive Laxman Narasimhan joined a conference call for analysts who follow the $36bn-a-year coffee chain and got straight to the bad news.
The latest quarter’s figures were “disappointing”, he admitted upfront, as he revealed the group’s first drop in same-store sales for three years and slashed its guidance for revenue growth. But, he insisted, he and his team had “a clear plan to execute” and remained confident of delivering on the brand’s “limitless potential”.
Wall Street’s reaction was severe, sending Starbucks shares plunging almost 16 per cent the next day. Unknown to Narasimhan, the earnings shock was also reverberating through a group of directors and investors, whose behind-the-scenes manoeuvres over the next 15 weeks would cost him his job.
Last Sunday, Narasimhan was abruptly informed by Starbucks chair Mellody Hobson that the board was ending his contract, less than two years after she had hired him with a $28mn package and the message that he was the “inspiring leader” the company needed.
Different people describe the call as “professional”, “terse” or just “brutal”. Hobson, it turned out, had already pitched Narasimhan’s job to someone else.
In June, according to people familiar with the matter, she approached Brian Niccol, the executive credited with turning around Chipotle Mexican Grill after the burrito chain had been knocked sideways by a food poisoning crisis. An industry star with an envied record of shareholder returns, he had not been available when Starbucks had considered hiring him in the past. Now, Hobson established, he might be.
Before executing the boardroom coup, she informed Schultz, arranging for a secret meeting last week between Niccol and the 71-year-old who had turned a small Seattle coffee bean supplier into a global brand, run the company three times and retained the title of chair emeritus when he left the board in 2023.
On the Sunday that Narasimhan learned that he was being replaced, Hobson signed off “with pleasure” on a letter welcoming Niccol to the twin roles of chair and chief executive, with a hiring package worth more than $100mn.
When the company announced the news on Tuesday, Starbucks shares jumped almost 25 per cent, adding nearly $20bn to its valuation to mark the stock’s best day in its 32-year history as a public company.
Narasimhan, a longtime meditator, had begun his first town hall meeting as Starbucks CEO by asking everyone to close their eyes and breathe for three silent minutes. A work-life balance advocate who claimed to avoid working past 6pm, the Indian-born former McKinsey consultant leaned into Schultz’s message that the chain sold not just coffee, but “human connection”.
Within weeks of him struggling to turn things around in a bruising television interview following April’s earnings, however, a tight knit group of directors and advisers came to the realisation that Starbucks’ third CEO change in less than three years might be necessary, said several people close to the board.
They gave few hints of the looming change to Narasimhan or the outside world. A month after the company’s dire earnings report, Microsoft CEO Satya Nadella disclosed he was leaving its board, “with a heart full of mixed emotions” but with “utmost confidence” in the “strategic acumen” of Narasimhan and his team.
Elliott Investment Management thought otherwise. As the insiders deliberated, the activist investor was accumulating a stake that made it one of Starbucks’ biggest shareholders, complicating their plans.
Quietly, the board engaged with Elliott, assuring the investor that it was proactively addressing the company’s problems but not disclosing its plans to replace Narasimhan, two people close to Starbucks said.
Elliott, which has earned a reputation for calling for executives’ heads and going public with its demands when quiet negotiations fail, pressed for board representation but stopped short of calling for a new CEO, said people familiar with the talks.
“Their constructive approach allowed us to make the necessary steps to get to where we are today,” said one person close to Starbucks.
Still, the negotiations dragged on for weeks, with other activists adding to the pressure. Nelson Peltz’s Trian Partners had separately accumulated a position and met Hobson, according to two people familiar with the matter who said Trian has since sold its holding. Starboard Value held a small stake but did not meet Starbucks’ management, said people familiar with the matter.
To the outside world, Narasimhan’s message was business as usual. He had inherited a strategy designed by Schultz, which laid out ambitious targets for “a new era of growth”, focused on bolstering the in-store experience and doubled down on expansion in China. When he sought to put his own stamp on the business in late 2023, he styled his “triple shot reinvention with two pumps” strategy the next step in the company’s “re-founding”.
But reality was diverging from Schultz’s plan and his own: inflation-wearied US consumers were more hesitant to pay the high prices its drinks had risen to, a boycott movement was targeting Starbucks over its perceived position on the Israel-Hamas war, and competition in the Chinese market had grown fiercer.
Narasimhan, for all his acumen, was struggling in the implementation of his strategy, former colleagues and analysts said.
In June, Starbucks launched a range of fruit-flavoured “iced energy beverages”, containing the same jolt of caffeine as a 16-ounce cold brew coffee. While some veterans of Schultz’s management team argued for them to include sugar — for an “amazing taste experience” in the words of one former executive — Narasimhan decided they would be sugar free.
“I don’t think he’s quite grasped the soul of the brand,” the former executive told the Financial Times, speaking when Narasimhan was still in charge.
The pushback spoke to Schultz’s enduring influence in Starbucks’ Seattle headquarters. Back in September 2022, when the outgoing boss had introduced Narasimhan at a rousing investor event in the sprawling brick building, Schultz had sworn that his third exit from the company would be his last.
“There will only be one leader at Starbucks, and it will be Laxman, not me,” he told an interviewer, pledging to be just “a respectful supporter”.
Within a week of Narasimhan’s April earnings call, however, Schultz went public with a thinly veiled critique of his latest successor. Writing on LinkedIn, he said Starbucks’ senior leaders and board members needed “to spend more time with those who wear the green apron” — the baristas in its thousands of stores.
In June, he piled on the public pressure with an appearance on the business podcast Acquired, saying: “If the company is doing a drift towards mediocrity, I hold leadership, and the board, responsible for that.”
In late July, another earnings announcement came with further evidence of that drift. Starbucks’ global same-store sales had dropped 3 per cent in the three months to June, marking a second quarterly fall. Comparable sales in China slid 14 per cent. By then, Hobson had already spoken to Niccol, said people briefed on the matter.
One person involved in the effort to hire him recalled the doubts that he would ever join. “Why would he? He had a great gig at Chipotle,” they said. But Niccol was in a position to negotiate better terms than those on which Narasimhan had come in.
Narasimhan had run a company in his own right — the UK’s Reckitt Benckiser — before Starbucks hired him. But he agreed to spend six months shadowing Schultz and training as a barista before officially taking over as CEO in March 2023. Schultz remained a director until that September, retiring with the right to still observe board meetings.
Narasimhan’s successor cut a very different deal. Hobson agreed to cede her chair role to Niccol, who had been both CEO and chair at Chipotle. He would be guaranteed full autonomy in running a company with a wider global reach than the US-based Chipotle, she told him, according to people briefed on the matter.
“Chipotle is an amazing company, but it’s essentially an American brand. When faced with the opportunity to run a company that is recognisable everywhere in the world he was immediately excited to take the challenge,” a person briefed on Hobson’s conversation said.
Hobson, Niccol and Schultz declined to comment for this article, and Narasimhan did not respond to a request for comment.
Niccol has yet to detail his plan for turning the tides that swept out his predecessor. But his appointment has lifted hopes among Starbucks directors that the contest with Elliott is settled, said people briefed on the matter.
While Elliott applauded Niccol’s appointment as “a transformational step forward”, it will continue engaging with the new leadership, one of those people said.
Another big Starbucks shareholder was also satisfied. The company gave the last word in its press release to someone who is no longer an employee even if he retains a parking space at its headquarters. “I believe he is the leader Starbucks needs at a pivotal moment in its history,” Schultz said. “He has my respect and full support.”
