March has not been a good month for the CEOs of big-name restaurant chains.
In the course of just a couple of weeks, Domino’s, Wingstop and Starbucks all announced plans to replace their chief executives. In each case, the brands had someone waiting in the wings to take over. It’s been some time since we’ve seen so many high-profile departures so quickly.
All of them raised a few eyebrows. The chains were among the pandemic’s leaders. Domino’s and Wingstop were among its strongest performers. Starbucks was among the most aggressive in closing up shop and adapting its store base to address consumer changes. All of them generated strong sales last year and are among the most admired businesses in their field.
Yet the changes also demonstrate changing needs, both for the companies and the executives themselves. Executives rethink priorities coming out of the pandemic, much like everyone else, or they decide now is the time to take that step with the environment seemingly improving. Others simply have different priorities.
And the companies themselves have been quicker to act to make changes. Companies need different kinds of talent from their executives than they needed just a few years ago. Their boards are often quick to make a hook when they recognize they have a need their current executive cannot provide.
“Boards are making faster decisions when they think it’s right for the brand and the future of the brand,” Alice Elliot, CEO of the executive search firm Elliot Group, said in an interview.
Short tenure
As a rule, public company CEO tenure is short. On average, a public company chief executive lasts just five years in their job, according to PricewaterhouseCoopers. That also means, on average, about eight publicly traded restaurant chains will replace their CEO every year.
But there are only a handful of industry jobs as desirable as those that opened this month. Domino’s is the world’s largest pizza chain, and Wingstop has one of the industry’s highest valuations, thanks to its remarkable performance during the pandemic.
The Starbucks job on its own is one of the industry’s most visible and highest-paying positions, as well as one of its most scrutinized. That the company is doing a search for Kevin Johnson’s successor suggests it is open to anyone who is qualified, making it the best job opening since the Chipotle CEO position was open for applications four years ago—and probably far longer, given that Starbucks is several times Chipotle’s size.
At the same time, the industry is in the midst of one of the most challenging periods in modern history. The pandemic was stressful on many operators, who worked furiously to remain in business. These days, labor challenges have persisted, forcing closures of entire restaurants because of a lack of workers. Supply chain problems are also a challenge.
Many executives, having made it through this period, could simply decide now is the time to do something different. “This has been an extraordinary time in every aspect,” Elliot said. “Even in industries that are extraordinarily fast-growing like health care. This is a moment people are feeling overwhelmed. There’s a need psychologically, physically and spiritually to take a deep breath.”
Public companies often focus on succession planning, ensuring they have someone who can come in and replace their chief executives should something happen. The pandemic, however, has intensified that need and made many companies think about who could step into the position should the chief executive fall ill.
“We have never been more active than now in prospective succession benchmarking and planning for companies,” Elliot said. The companies make sure that, should something happen, “they’re well prepared to understand the talent landscape both within and outside their industries.”
The different jobs
Domino’s, Starbucks and Wingstop aren’t the only companies going through this process. In December, Gene Lee announced his retirement from Olive Garden owner Darden Restaurants, a move that will take place in May. In his announcement, he said simply that “the time is right for this transition.” Lee, however, remains its chairman. Rick Cardenas, the company’s president, will take over.
Similarly, both Domino’s and Wingstop are handing the keys to executives who served as their companies’ president and chief operating officer.
In Domino’s case, that position is going to Russell Weiner, a longtime company executive who has long been thought of as a future chief executive. The company also named former CEO David Brandon executive chairman, a likely sign of continuity to Wall Street investors.
Yet Domino’s is also facing a set of challenges it has not seen in some time. The company began having major problems finding drivers, which ended the company’s decade-long streak of same-store sales growth. Those sales worsened late last year, and further this year thus far, as its drivers called in sick.
Longtime rival Papa Johns has some of those same challenges—it warned customers of service problems in January—yet its sales have remained stronger, in part because its development of products like NY Style Pizza and Epic Stuffed Crust has encouraged customers to spend more. Domino’s has traditionally relied more heavily on price, yet inflation has caused the company to change its popular value offers.
It may be no surprise, then, that the company is turning to someone like Weiner, who was chief marketing officer in 2009 when the chain deployed its famous ad campaign admitting its former pizza recipe was terrible.
Wingstop has seemingly had none of those challenges. Two-year same-store sales rose nearly 30% last year. It trades at an enterprise value multiple of nearly 38 times earnings before interest, taxes, depreciation and amortization, higher even than Chipotle’s. Morrison hands the job to Michael Skipworth, the company’s president.
The move raised eyebrows largely because of the company to which he is going, Salad and Go, which is a relative unknown in the industry and has only about 50 locations. Morrison also was about halfway through a contract he signed in 2019. Several people asked us why Morrison would leave a highly-valued growth chain where he stood to earn millions to helm a relative unknown.
Yet Morrison has been with Wingstop for a decade. And at Salad and Go, Morrison gets an opportunity to build again. He helmed Pizza Inn more than a decade ago, when he was a pioneer in the fast-casual pizza business with the creation of Pie Five. He then moved to Wingstop, took the company public and proved the heavy consumer demand for takeout chicken wings. At Salad and Go, he could prove consumer willingness to get takeout salads. Morrison may simply be taking a long-term bet on himself.
The Starbucks conundrum
Johnson’s departure appears to be more complicated. He is 61, and apparently told the company’s board of directors a year ago that he would leave toward the end of the pandemic.
Yet that timing itself raises questions. That was around the time when Roz Brewer, then the chief operating officer and one of the industry’s most highly regarded executives, left to become the CEO of Walgreen’s. If Johnson did have a retirement on the horizon at around that time, it means Brewer wasn’t tabbed as the potential successor, or she didn’t want the job for one reason or another.
What’s more, as with the examples of Gene Lee and Ritch Allison, companies making deliberate CEO successions typically take several weeks or even months. Johnson is leaving in two weeks.
And Howard Schultz, his predecessor, is coming back to lead the chain. So-called boomerang CEOs typically only take such steps when there is a need for major change. Schultz is coming back for a third time and will take a salary of only $1. He will be there on an interim basis.
Much like David Brandon, that could be aimed at assuaging any concerns among investors, and analysts have generally been positive on the Schultz news. Starbucks’ stock rose 5% when it was announced, after all.
Yet it has led to considerable speculation that Schultz is coming back to fix some of the problems that generated what has been an unprecedented rise in labor unions at the company. Six Starbucks locations have voted to form a union. Another 139 are planning such votes. And employees of a company that had long prided itself on its treatment of workers have been winning the messaging battle.
Schultz could well fix the problem and leave. Or maybe he’ll stick around.
“We cannot think of a better executive to lead the brand at this stage in its growth cycle, as it emerges from the pandemic and works to appease partners, unions and shareholders alike,” BTIG analyst Peter Saleh wrote in a note. He then added, “we would not be surprised if this transition period leads to a permanent role (again) for Mr. Schultz.”
Neither would we. Then again, Starbucks could have its pick of the top executives in the country, especially if Schultz somehow manages to navigate those challenges. Or Schultz could help groom Johnson’s true successor from the company’s immense bench of executive talent.