On the heels of last week’s story looking at recent visitation trends at Starbucks and Chipotle, this week brought shocking news that Chipotle CEO Brian Niccol would be replacing Laxman Narasimhan as Starbucks CEO. We had spoken about Starbucks’ underperforming visit trends the past few weeks, owing largely to weakness among more occasional visitors. Even though we had started to see modest improvement in occasional visitors during July, visit trends remained down year-over-year.
In many ways, Niccol is walking into a similar situation that he did with Chipotle in February 2018, where the brand had stagnated amid competition from new rivals, concerns were starting to mount over peak-hour throughput, its digital platform and second make line were underutilized, and new menu innovation was lacking. As we show below, Chipotle was lagging the fast-casual restaurant category in 2017 with respect to visits per location, recovered in 2018, and has outpaced the fast-casual category by a meaningful amount every year since then.
What can be expected as Niccol takes the leadership reins at Starbucks? For starters, we’d expect Niccol to take a few months to diagnose Starbucks’ slowing visitation trends. After his appointment as CEO, Niccol took a few months to identify Chipotle’s challenges and opportunities before introducing them in a June 2018 investor presentation. Coming over from Taco Bell, there was some concern that Niccol would try to implement some of the more extreme menu innovations and marketing campaigns that had driven Taco Bell’s turnaround in the mid 2010s. However, he understood that the Chipotle brand was very different from Taco Bell, and took a much different approach. The aforementioned investor presentation focused on new menu innovations, a more streamlined digital ordering approach, and increased reliance on television advertising. Expect each of these to be a part of the Starbucks turnaround.
The aforementioned visits per location trends show that late 2018 and early 2019 was really the key period where Starbucks visit trends inflected versus the rest of the category. Why did Chipotle outperform? For starters, the company launched its ‘For Real’ marketing campaign in September 2018, which emphasized the company’s “commitment to preparing real food made with real ingredients” across traditional TV ads, out of home ads, digital and print ads as well as social media. For Chipotle–which up until this point had largely relied on word-of-mouth and some social/digital media advertising–this campaign was essentially its first foray in national TV advertising and in many ways served as a reintroduction to the brand for many consumers. This campaign was followed by the introduction of “Lifestyle Bowls” in early 2019, using existing ingredients on its menu to develop bowls for a number of dietary preferences. Despite its being known for fresher ingredients, Chipotle had started to face a reputation as an unhealthy restaurant option, and this move helped to reverse that sentiment. Proof? January 2019 outperformed every month in 2018-2019 with respect to year-over-year visits per location growth. Throughout the rest of 2019, the company featured free delivery campaigns as well as specialized promotions for teachers, nurses, and veterans, which helped to maintain the positive visits per location growth. However, the next transformative step under Niccol’s tenure was the launch of Carne Asada in late September 2019. This was essentially the first time since the chain’s founding that the company had introduced a new protein option, and it was immediately a hit from a visitation standpoint (so much so that it was extended into 2020).
Interestingly, Niccol’s efforts during 2018 and 2019 didn’t really have a transformative effect on Chipotle’s visitor demographics. Using Census 2017 data for Chipotle’s collective U.S. trade areas, we see very little change in demographic factors such as household income, education, ethnicity, and persons per household.
However, where we did see a material change was visit frequency. Below, we show the percentage of visits by month for 2017 and 2019 for loyal (2 or more visits for the month) versus casual (1 visit) visitors. In 2017, loyal visitors accounted for around 36% of total visits. However, by 2019 following the TV campaign, Lifestyle Bowls, and launch of Carne Asada, we saw that number jump to 44% (below).
While there are differences between the two chains, we believe that Niccol’s turnaround playbook for Starbucks will likely look very similar to his early strategies at Chipotle: (1) identify and promote the unique attributes of the brand via a multi-channel marketing campaign; (2) find innovative ways to promote existing products on the menu; and (3) introduce new food and beverage products that don’t add incremental complexity to the production process. There will undoubtedly be a greater focus on improving peak-hour throughput and expansion into smaller markets, two areas where Chipotle has seen success the past few years as well. The transformation won’t happen overnight, but the data behind Niccol’s early strategies at Chipotle hints at a successful turnaround.
