Shares of burrito chain Chipotle (CMG 0.12%) tumbled as much as 14% Tuesday morning after CEO Brian Niccol stunned the industry by announcing his departure to take the top job at Starbucks (SBUX 1.03%).
That sell-off wiped roughly $10 billion from Chipotle's market value, showing how respected Niccol is after turning the business around from its E. coli scandal and guiding the stock to monster returns. Starbucks, meanwhile, rocketed 21% higher on the news, adding $20 billion in market cap -- a $30 billion swing altogether.
Not many CEOs would have that kind of impact by hopping jobs, but Niccol is rightly regarded as one of the top leaders in the industry and a turnaround specialist after his work at Chipotle, where he took over a company that had languished for years due to the aforementioned E. coli outbreak.
Image source: Chipotle.
What the transition looks like
Niccol isn't wasting much time. He'll be leaving Chipotle at the end of the month, and current chief operating officer Scott Boatwright is set to take over as interim CEO.
Boatwright has been with Chipotle since 2017, starting out as chief restaurant officer. Niccol was also chairman of the board at Chipotle and will be replaced there by Scott Maw, its current lead independent director.
Chipotle also said that longtime CFO Jack Hartung, the only executive still with the company from its early days, will delay his retirement, planned for 2025, and remain indefinitely as president of strategy, finance, and supply chain to help ensure a smooth transition.
It's unclear whether Chipotle is planning to look for an outside CEO or whether Boatwright is likely to remain in the post permanently.
Big tortillas to fill
There's little question that Niccol leaves a big hole at Chipotle. Not only did Chipotle recover from the E. coli crisis under his leadership, which Niccol managed to do partly with some clever marketing and changing of the subject, but the company also moved into the digital age by embracing online and app-based ordering, as well as delivery. It's also invested significantly in Chipotlanes, the company's drive-thru/online pick-up concept that has helped boost sales, and found success with limited-time offerings like carne asada. The company even moved its headquarters from Denver to Niccol's home in Newport Beach, California.
However, he leaves Chipotle with the business on excellent footing, noting, "I depart knowing the business is in great shape and poised for growth with a strong, experienced leadership team."
Chipotle's performance over the last few years has been virtually flawless, and the company faces little direct competition, at least in the Mexican fast-casual category, or other significant threats. In its second-quarter earnings report, revenue jumped 18%, driven by a comparable sales increase of 11%. Margins continue to expand as well, with operating margin rising from 17.2% to 19.7% in the quarter.
NYSE: CMG
Key Data Points
No reason to sell Chipotle stock
Given Niccol's reputation and success as Chipotle's CEO, it's understandable why investors are dumping the stock on the news. Most investors had probably assumed the 50-year-old would stay at Chipotle for the rest of his career. While his departure certainly stings and has left a hole in its executive team, the actual risk from his absence seems minimal at this point.
The restaurant industry is more stable than fast-moving sectors regularly disrupted by new technology, and Chipotle's competitive advantages seem entrenched at this point. Its brand is well known, customers like its product, and it left one-time burrito rivals like Qdoba and Baja Fresh behind long ago.
Warren Buffett once mused that he prefers to invest in companies that could be run by a "ham sandwich" because eventually they will be.
Running Chipotle might not be that automatic, but it's getting close. While it could take the new management team some time to find the right balance, customers are unlikely to notice a difference. For investors, Chipotle stock still looks poised to be a long-term winner.
