Starbucks suddenly replaces CEO after sales drop

Starbucks has suddenly replaced its chief executive after the company suffered a bigger-than-expected drop in sales.

The coffee chain’s board announced on Tuesday that Laxman Narasimhan had departed the firm “effective immediately”.

They said Brian Niccol – the boss of burrito chain Chipotle – would soon take his place.

It comes following mounting pressure and speculation over the future of Mr Narasimhan, who had only been in the role for a year-and-a-half.

Last month, the firm reported that global sales had fallen by 3% during its third quarter – more than forecast by analysts, and the latest in a string of disappointing financial results.

Along with slumps in regions such as the US and the Middle East, sales plunged by 14% in China during the period.

The declines have been blamed on a combination of weaker demand amid price rises and boycotts related to the war in Gaza.

Mr Narasimhan, previously chief executive of multinational consumer goods firm Reckitt, had been under scrutiny over his lack of experience in the restaurant sector.

Despite spending months studying Starbucks‘s business – including training as a barista – he came under further pressure in May when his predecessor Howard Schultz published an open letter urging the chain to make improvements.

There has also been pressure from activist investor Elliott Investment Management after it built a $2bn (£1.55bn) stake and demanded changes in the firm.

Mellody Hobson, who has stepped down as chairman to lead the company’s board as part of the shake-up, admitted to CNBC that she had begun pushing to have Mr Narasimhan replaced “a couple of months ago”.

Mr Niccol, who has also held senior positions at major US food brands including Taco Bell and Pizza Hut, will become chief executive on 9 September.

Ms Hobson said she was “thrilled”, adding: “His phenomenal career speaks for itself.”

Mr Niccol has been credited with transforming Chipotle’s fortunes – including helping its stock price to soar by nearly 800% under his leadership.

Mr Schultz welcomed the appointment – as he warned the company was now at a “pivotal moment in its history”.

Shares in Starbucks soared by more than 20% in early trading following the announcement – while Chipotle’s stock fell more than 10%.

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The chief financial officer of Starbucks, Rachel Ruggeri, will serve as interim chief executive in the meantime.

Mr Niccol said in a statement he was “excited” to be taking up the job and said he believed there was “tremendous potential” for the company to grow.

It comes after Starbucks has been subjected to boycotts over the war in Gaza after it took legal action last year against US union Workers United for using its name and a similar logo.

The move came shortly after the union’s social media account published a post expressing solidarity with the Palestinian people.

Other major US companies hit by Gaza boycotts, including McDonald’s, have also suffered from falling sales.

Starbucks said its “official position” was that it “condemns the violence in the region”.