Starbucks has explored Chipotle takeover, FT reports

Oct 8 (Reuters) - Starbucks has explored a takeover of Chipotle Mexican Grill, the Financial Times reported on Thursday, in a move that would reunite Chief Executive Brian Niccol with the burrito chain he led before joining the coffee giant two years ago.

The potential deal comes as restaurant chains wrestle with uncertain demand from inflation-weary consumers and rising operating costs, prompting companies to look for new avenues of growth while facing pressure to improve profitability.

Starbucks has worked with advisers in recent months on a takeover proposal for Chipotle, the FT reported, citing people familiar with the matter.

Starbucks declined to comment on the report, other than to say it is focused on its turnaround under Niccol, a spokesperson told Reuters.

Chipotle did not immediately respond to Reuters requests for comment.

Shares of Chipotle, which has a market capitalization of nearly $39 billion, were up about 6% on Thursday, while those of Starbucks were down about 3%. Starbucks is worth about $107 billion, according to LSEG data.

Analysts said any acquisition would likely be a costly undertaking for Starbucks, which is still investing heavily in its turnaround efforts.

"A deal could require heavy borrowing or issuing shares," said Lale Akoner, global market strategist at eToro. "Without a compelling financial case, investors may view the deal as an expensive distraction."

Starbucks is in the midst of a turnaround under Niccol, who has prioritized customer satisfaction through investments in staffing and store improvements aimed at reducing wait times and restoring the coffeehouse atmosphere that helped make the chain a global brand.

Since joining the company in September 2024, Starbucks has committed at least $500 million to labor investments as part of its reorganization, contributing to pressure on profitability. As of the fiscal third quarter, adjusted operating margin was 14.4%, down from 16.7% in the same quarter two years earlier, according to LSEG data.

Starbucks has reported four consecutive quarters of comparable sales growth under Niccol, but in July he said that "We have more work to do."

"The timing of this would be a little weird, given that Starbucks is in the middle of their transformation and hasn't yet shown the margin improvement investors are probably hoping for. Instead of jump-starting the transformation, at first blush, this seems more like jumping the shark instead," said Brian Jacobsen, chief economic strategist at Annex Wealth Management.

Chipotle, meanwhile, has been contending with softer traffic as consumers pull back on discretionary spending, while higher food and labor costs have pressured margins across the restaurant industry. Its shares have nearly halved since Niccol left the company.

A potential deal could accelerate Chipotle's international expansion, some analysts said.

"What I like about this potential is the opportunity CEO Brian Niccol would have to leverage Starbucks' licensed partnerships in Europe to expand Chipotle more aggressively," said Jim Sanderson, an analyst at Northcoast Research.

As of the end of last year, Chipotle had nearly 4,000 restaurants in the United States and about 100 international locations. Starbucks, meanwhile, has roughly 40,000 stores globally, including about 18,000 in North America.

Niccol joined Starbucks in 2024 after spending six years at Chipotle, where he was credited with steering the company through the aftermath of its food-safety crises and building out its digital business, helping drive years of strong sales growth.

(Reporting by Neil J Kanatt in Bengaluru; Writing by Aishwarya Venugopal; Editing by Arun Koyyur, Nick Zieminski and David Gaffen)