Chipotle will survive | The Pied Fool

Burrito chain shares Chipotle (CMG -9.01%) fell as much as 14% on Tuesday morning after CEO Brian Niccol stunned the industry by announcing his departure to take the top job at Starbucks (SBUX 20.65%).

That sale wiped about $10 billion off Chipotle’s market value, showing how well-respected Niccol is after turning the business around from its E. coli scandal and leading the stock to monster returns. Meanwhile, Starbucks surged 21% on the news, adding $20 billion in market cap — a total change of $30 billion.

Not many CEOs would make such an impact by shedding jobs, but Niccol is rightly considered one of the industry’s top leaders and a turnaround specialist after his work at Chipotle, where he took over a languishing company years due to the aforementioned E. coli outbreak.

Image source: Chipotle.

What the transition looks like

Niccol doesn’t waste much time. He will leave Chipotle at the end of the month, with current COO Scott Boatwright set to take over as interim CEO.

Boatwright has been with Chipotle since 2017, starting as the restaurant’s executive chef. Niccol was also chairman of the board at Chipotle and will be replaced there by Scott Maw, the current lead independent director.

Chipotle also said longtime CFO Jack Hartung, the only executive still with the company from its early days, will delay his retirement, planned for 2025, and stay on indefinitely as president of strategy, finance and chain. supply to ensure a smooth transition.

It’s unclear whether Chipotle plans to seek an outside CEO or whether Boatwright will remain in the position permanently.

Large tortillas to fill

There’s no doubt that Niccol leaves a big hole at Chipotle. Not only did Chipotle recover from the E. coli crisis under his leadership, which Niccol was able to do in part with smart marketing and changing the subject, but the company also entered the digital age by adopting online and food-based ordering. applications because as well as delivery. It also invested significantly in Chipotlanes, the company’s online pick-up concept that helped drive sales and found success with limited-time offers such as 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 a great footing, noting, “I’m leaving knowing the business is in great shape and poised for growth with a strong and experienced leadership team.”

Chipotle’s performance in recent 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 rose 18%, driven by comparable sales growth of 11%. Margins also continue to expand, with operating margin increasing from 17.2% to 19.7% in the quarter.

There is no reason to sell Chipotle stock

Given Niccol’s reputation and success as Chipotle’s CEO, it’s understandable why investors are shrugging off the news. Most investors probably assumed the 50-year-old would stay at Chipotle for the rest of his career. While his departure certainly stung and left a hole in the executive team, the real 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 love the product, and it has long since left behind burrito rivals like Qdoba and Baja Fresh.

Warren Buffett once opined that he prefers to invest in companies that might be run by a “ham sandwich,” because eventually they will be.

Running Chipotle may not be quite as automatic, but it’s getting close. While the new management team may take 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.