On the heels of declaring CEO Brian Niccol’s “Back to Starbucks” turnaround strategy a success, Starbucks has reportedly considered purchasing fast-casual Mexican chain Chipotle.
The deal seems to be just a kicking of the tires at this point, with the Financial Times reporting that the coffee giant has “explored a takeover” and also “worked with advisors in recent months on a takeover proposal.”
While Chipotle shares leapt at the news, the coffee’s chain’s stock price stumbled. Investors are purportedly worried that taking over a fast-casual food chain with a $39 billion market cap and north of 4,200 locations would be too big an operational burden, especially with Starbucks’ turnaround not yet complete.
Two years into Niccol’s plan—which aims to improve customer service and return many of its 41,000 locations back into the welcoming respites they were in the 1990s—he declared to employees that “Starbucks is back.”
But in an exclusive interview with ADWEEK earlier this month, he conceded that the turnaround isn’t quite complete.
“I probably underestimated the scale of the business that Starbucks is,” Niccol said. “I wish we were going a little bit faster with digital. I wish we were going a little bit faster with the menu. But culturally, we are so much better because we’re now focused on owning outcomes, not celebrating activity.”
If an acquisition of Chipotle goes through, there’d be much more to focus on than that.
Chipotle finished Q2 strong, with total revenues up 9.3% to $3.3 billion and comp sales up by 2.2%. But the chain continues to battle the perception that its prices are too high, especially as many consumers are thinking about how to pay for gas that’s crept north of $4 a gallon.
If Starbucks is serious about buying Chipotle, the merger will require regulatory approval (though President Trump’s administration has shown itself to be M&A friendly.)
Barring that, the combined brands would create a $50 billion behemoth with two concepts that lack a lot of operational overlap. Chipotle serves no coffee, and Starbucks, at least to date, does not serve burritos. (Though there’s an avocado spread on the fall menu.)
Even so, operational efficiencies are possible, said David Mayer, senior partner and director of marketing and customer strategy at Lippincott, as are “cross-selling opportunities, and, longer term, the potential to add more brands to the portfolio.”
On the flip side, Chipotle can offer growth opportunities that Starbucks itself cannot.
“If that’s the case,” Mayer said, “the diversion of management attention, combined with weakening brands, may risk creating a combined entity that continues to decline and is even harder to turn around.”
If nothing else, a merger would theoretically return Niccol to the executive suite of Chipotle, where he served as CEO from March of 2018 until August of 2024. Chipotle’s size doubled during Niccol’s time in the corner office—no small part of why Starbucks poached him.
